OSTE Osteotech Com (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

þ		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) )
o		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

Osteotech, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

o		No fee required.
þ		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	1)	Title of each class of securities to which transaction applies:
		o	Common stock, par value $0.01 per share ( “Common Stock” )
	2)	Aggregate number of securities to which transaction applies:
		o	18,245,363 shares of Common Stock (representing the number of shares of Common Stock outstanding on September 14, 2010);
		o	options to purchase 1,257,475 shares of Common Stock (as of September 14, 2010) (“ Options ”); and
		o	483,887 shares of Common Stock issuable upon acceleration and vesting of outstanding unvested restricted stock units (as of September 14, 2010) (“ Restricted Stock Units ”).
	3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
		Calculated solely for the purpose of determining the filing fee. The transaction value was determined based upon the sum of:
		o	$118,594,860 (18,245,363 shares of Common stock multiplied by $6.50 per share);
		o	$1,606,606 (931,375 Options with an exercise price of less than $6.50 per share multiplied by the difference between $6.50 and the applicable exercise price of each Option); and
		o	$3,145,266 (483,887 shares of Common Stock issuable upon acceleration and vesting of outstanding unvested Restricted Stock Units, multiplied by $6.50 per share).
		In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying .0000713 by the proposed maximum aggregate value of the transaction of $123,346,732.
	4)		Proposed maximum aggregate value of transaction: $123,346,732
	5)		Total fee paid: $8,795

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	1)		Amount Previously Paid:
	2)		Form, Schedule or Registration Statement No.:
	3)		Filing Party:
	4)		Date Filed:

 

 

SPECIAL MEETING OF STOCKHOLDERS — MERGER VOTE REQUIRED

To the Stockholders of Osteotech, Inc.:

     On August 16, 2010, we entered into an Agreement and Plan of Merger with Medtronic, Inc., Medtronic Sofamor Danek, Inc., a wholly owned direct subsidiary of Medtronic (“ MSD ”), and England Merger Corporation, a wholly owned direct subsidiary of MSD (“ Merger Sub ”). If the merger is completed pursuant to the terms of the merger agreement, Merger Sub will be merged with and into Osteotech, and Osteotech will continue as the surviving corporation, a wholly owned subsidiary of MSD and a wholly owned indirect subsidiary of Medtronic. Upon completion of the merger, holders of our outstanding common stock will be entitled to receive $6.50 in cash, without interest, and less any applicable withholding taxes, for each share of common stock they own at the effective time of the merger, subject to decrease only if it were determined that (i) our records reflecting the outstanding common stock, options to purchase shares of our common stock, or restricted stock units are inaccurate or (ii) the aggregate amount of third party expenses incurred by us in connection with the merger (excluding any amounts incurred by us as a result of additional requests for information under antitrust laws, security holder litigation or the receipt by us of any superior acquisition proposals) exceeds $4,868,400 (but only if such excess would result in a reduction to the price equal to more than $0.01 per share of common stock), and, but for the decrease, the aggregate consideration payable by Medtronic would exceed $123,249,643 plus the aggregate exercise price of all in the money options outstanding as of the date of the merger agreement that are properly exercised between the date of the merger agreement and the effective time of the merger (which amount, in the aggregate, reflects merger consideration of $6.50 per share).

     In connection with our merger agreement with Medtronic, we will hold a special meeting of our stockholders on • , 2010 at 9:00 a.m., local time, at our corporate office at 51 James Way, Eatontown, New Jersey 07724. Stockholders will be asked at the special meeting to consider and vote upon the adoption of the merger agreement and approval of the merger. After careful consideration, our board of directors has unanimously approved the merger agreement and the transactions contemplated by the merger agreement and has determined that the merger agreement and the merger are advisable, fair to and in the best interests of Osteotech and its stockholders. Accordingly, our board of directors unanimously recommends that Osteotech stockholders vote “FOR” the adoption of the merger agreement and approval of the merger. We are also asking you to vote “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger.

     The merger cannot be completed unless the holders of a majority of the outstanding shares of our common stock at the close of business on the record date for the special meeting vote “FOR” the adoption of the merger agreement and approval of the merger. The completion of the merger is also subject to the satisfaction or waiver of other specified closing conditions. The accompanying proxy statement provides you with more detailed information about the proposed merger and the special meeting. We encourage you to read the accompanying proxy statement carefully, including the annexes, and in its entirety because it explains the proposed merger, the documents related to the merger and other related matters.

     Your vote is very important, regardless of the number of shares you hold. Whether or not you plan to attend the special meeting, please take the time to submit a proxy by following the instructions on your proxy card as soon as possible. If your shares are held in an account at a brokerage firm, bank or other nominee, you should instruct your broker, bank or nominee how to vote in accordance with the voting instruction form furnished by your broker, bank or nominee. If you submit your proxy but do not indicate how you want to vote, your proxy will be voted “FOR” the adoption of the merger agreement and approval of the merger and “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger. If you do not vote or do not instruct your broker, bank or nominee how to vote, it will have the same effect as voting “AGAINST” the proposal to adopt the merger agreement and approve the merger — so please vote.

     We are very excited about the merger and I join the other members of our board of directors in recommending that you vote “FOR” the adoption of the merger agreement and approval of the merger. After you have reviewed the enclosed materials, please vote by one of the means specified in the proxy statement as soon as you can. Thank you in advance for your continued support.

     This transaction has not been approved or disapproved by the Securities and Exchange Commission or any state securities commission. Neither the Securities and Exchange Commission nor any state securities commission has passed upon the merits or fairness of this transaction or upon the adequacy or accuracy of the information contained in this proxy statement. Any representation to the contrary is a criminal offense.

     This proxy statement is dated • , 2010 and is first being mailed to stockholders of Osteotech, Inc. on or about • , 2010.

51 James Way
Eatontown, New Jersey 07724
Telephone: (732) 542-2800

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON • , 2010

To the Stockholders of Osteotech, Inc.:

     NOTICE IS HEREBY GIVEN THAT a special meeting of stockholders of Osteotech, Inc., a Delaware corporation, will be held on • , 2010 at 9:00 a.m., local time, at our corporate office at 51 James Way, Eatontown, New Jersey 07724:

	1.		To consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of August 16, 2010, by and among Medtronic, Inc., Medtronic Sofamor Danek, Inc., England Merger Corporation and Osteotech, Inc. and to approve the merger;
	2.		To consider and vote upon any proposal by Osteotech’s board of directors to adjourn the special meeting, if necessary, to solicit additional proxies in support of Proposal 1 if there are not sufficient votes at the time of the special meeting in favor of adoption of the merger agreement and approval of the merger; and
	3.		To transact such other business as may properly come before the special meeting or any adjournments of the special meeting.

      Our board of directors has unanimously approved the merger agreement and recommends that Osteotech stockholders vote “FOR” the adoption of the merger agreement and approval of the merger. Our board of directors also recommends that Osteotech stockholders vote “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger.

     Our board of directors has fixed the close of business on • , 2010 as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting and any adjournment or postponement of the special meeting. Only holders of record of shares of our common stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting or any adjournment or postponement of the special meeting. At the close of business on the record date, Osteotech had outstanding and entitled to vote • shares of common stock. Osteotech stockholders who do not wish to accept the merger consideration for their shares and who do not vote in favor of the adoption of the merger agreement and approval of the merger may have appraisal rights under Delaware law in connection with the merger if they meet specified conditions. See the section of this proxy statement entitled “The Merger—Appraisal Rights” beginning on page • .

      Your vote is very important, regardless of the number of shares you hold. The affirmative vote of the holders of a majority of the outstanding shares of our common stock at the close of business on the record date is required to adopt the merger agreement and approve the merger. The affirmative vote of the holders of a majority of the shares of our common stock at the close of business on the record date that are present in person or represented by proxy at the special meeting and entitled to vote may approve any proposal by our board of directors to adjourn the meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the adoption of the merger agreement and approval of the merger.

     Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy card and thus ensure that your shares will be represented at the special meeting if you are unable to attend. If you submit your proxy but do not indicate how you wish to vote, your proxy will be counted as a vote “FOR” the adoption of the merger agreement and approval of the merger and “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger. If you do not vote,

it will have the same effect as a vote “AGAINST” the proposal to adoption of the merger agreement and approval of the merger and make it more difficult for Osteotech to achieve a quorum at the special meeting — so please vote. If you do not vote, it will not affect the outcome of any proposal to adjourn the special meeting, but will reduce the number of votes required to approve such a proposal. If you do attend the special meeting and wish to vote in person, you may withdraw your proxy and vote in person.

     This proxy statement contains detailed information about the merger and the other transactions contemplated by the merger agreement. Please read this proxy statement and the merger agreement attached to it as Annex A carefully and in their entirety. For specific instructions on how to vote your shares, please refer to the section of this proxy statement entitled “The Special Meeting” beginning on page • .

Eatontown, New Jersey
• , 2010

SUMMARY VOTING INSTRUCTIONS

YOUR VOTE IS IMPORTANT

     Ensure that your shares can be voted at the special meeting by submitting your proxy or contacting your broker, bank or other nominee. If you do not vote or do not instruct your broker, bank or other nominee how to vote, it will have the same effect as voting “AGAINST” the adoption of the merger agreement and approval of the merger.

      If your shares are registered in the name of a broker, bank or other nominee : check the voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your shares are voted in favor of the proposals at the special meeting.

      If your shares are registered in your name : submit your proxy as soon as possible by signing, dating and returning the enclosed proxy card in the enclosed postage-paid envelope, so that your shares can be voted in favor of the proposals at the special meeting.

      YOU SHOULD NOT SEND YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD.

     If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact:

Osteotech, Inc. Attn: Assistant Secretary 51 James Way Eatontown, New Jersey 07724 Telephone: (732) 542-2800 or our proxy solicitor, Georgeson 199 Water Street New York, New York 10038 Call toll free (877)-278-4775 or e-mail osteotech.info@georgeson.com

TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING			iii
SUMMARY TERM SHEET			1
The Parties to the Merger			1
The Merger			2
Effect on Capital Stock			2
Effect on Equity Awards			2
The Merger Agreement			3
Recommendation of our Board of Directors			5
The Special Meeting			5
Opinion of Osteotech’s Financial Advisor			5
Interests of our Directors and Executive Officers in the Merger			6
Market Price and Dividend Data			6
Delisting and Deregistration of Osteotech’s Common Stock			7
Material United States Federal Income Tax Consequences			7
Regulatory Matters			7
Appraisal Rights			7
Paying Agent			7
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			8
THE SPECIAL MEETING			8
Date, Time and Place			8
Purpose of Special Meeting			8
Recommendation of our Board of Directors			9
Record Date; Stock Entitled to Vote; Quorum			9
Votes Required			9
Voting by Osteotech Directors and Executive Officers			10
Voting of Proxies			10
Revocability of Proxies			10
Solicitation of Proxies			11
Appraisal Rights			11
Assistance			11
THE MERGER			11
General Description of the Merger			11
Merger Consideration			11
Background to the Merger			13
Recommendation of our Board of Directors			23
Certain Projections			27
Opinion of Deutsche Bank Securities Inc.			29
Interests of our Executive Officers and Directors in the Merger			36
Market Price and Dividend Data			42
Regulatory Matters			42
Appraisal Rights			43
Accounting Treatment			46
Material United States Federal Income Tax Consequences			46
Delisting and Deregistration of Our Common Stock			49
Class Action Complaints Relating to the Merger			49

PROPOSAL NO. 1: THE MERGER AGREEMENT			50
The Merger			50
Closing; Effective Time			50
Certificate of Incorporation and Bylaws			50
Directors and Officers			50
Effect on Capital Stock			51
Effect on Equity Awards			54
Procedures for Exchange of Certificates			54
Transfer of Ownership, Ownership Rights and Lost Certificates			55
Unclaimed Amounts			55
Representations and Warranties			55
Material Adverse Effect			57
Covenants Relating to the Conduct of Our Business			58
No Solicitation of Alternative Transactions			60
Tender Offer Rules			63
Stockholder Approval			63
Postponement of Annual Meeting			63
Reasonable Best Efforts			63
Indemnification; Insurance			64
Employee Matters			64
Takeover Laws; Company Rights Plan			65
Compliance with Anti-Bribery Laws			65
Compliance with Data Protection Laws			65
Conditions to Completion of the Merger			65
Termination			66
Termination Fee			67
Amendment, Extension and Waiver			68
PROPOSAL NO. 2: APPROVAL OF ADJOURNMENT OF SPECIAL MEETING			68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			69
STOCKHOLDER PROPOSALS			72
OTHER MATTERS			72
“HOUSEHOLDING” OF PROXY MATERIALS			72
WHERE YOU CAN FIND MORE INFORMATION			72
CERTAIN INFORMATION REGARDING OSTEOTECH AND MEDTRONIC			73
MISCELLANEOUS			73
Annexes
Annex A — Agreement and Plan of Merger
Annex B — Opinion of Deutsche Bank Securities Inc.
Annex C — Section 262 of the Delaware General Corporation Law

     This proxy statement contains information related to our special meeting of stockholders to be held on • , 2010 at 9:00 a.m., local time, at • , and at any adjournments or postponements thereof. We are furnishing this proxy statement to the stockholders of Osteotech, Inc. as part of the solicitation of proxies by Osteotech’s board of directors for use at the special meeting.

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

      The following are some questions that you, as a stockholder of Osteotech, may have regarding the proposed merger and the special meeting of Osteotech stockholders as well as brief answers to such questions. We urge you to read carefully the entirety of this proxy statement because the information in this section does not provide all the information that may be important to you with respect to the adoption of the merger agreement and approval of the merger. Additional important information is also contained in the annexes to this proxy statement.

     Throughout this proxy statement we refer to Osteotech, Inc. as “ Osteotech ” and as “ we ,” “ our ,” “ us ” and similar words.

Q:	When and where is the special meeting of our stockholders?

A:

The special meeting of Osteotech stockholders will take place on • , 2010 at 9:00 a.m., local time, at our corporate office at 51 James Way, Eatontown, New Jersey 07724.

Q:

What matters will be voted on at the special meeting?

A:		We have entered into an Agreement and Plan of Merger (which we refer to in this proxy as the “ merger agreement ”) with Medtronic, Inc., a Minnesota corporation (which we refer to in this proxy statement as “ Medtronic ”), Medtronic Sofamor Danek, Inc., an Indiana corporation and a wholly owned subsidiary of Medtronic (which we refer to in this proxy statement as “ MSD ”) and England Merger Corporation, a Delaware corporation and wholly owned direct subsidiary of MSD (which we refer to in this proxy statement as “ Merger Sub ”). Under the terms of the merger agreement, Merger Sub will merge with and into Osteotech, with Osteotech surviving the merger and becoming a wholly owned indirect subsidiary of Medtronic under the name “Medtronic Osteotech, Inc.” (which we sometimes refer to in this proxy statement as the “ surviving corporation ”).
		In order to complete the merger, we must obtain the affirmative vote of the holders of a majority of the outstanding shares of our common stock. A special meeting of our stockholders will be held on • , 2010 to obtain this vote of our stockholders. At this special meeting, you will be asked to consider and vote on the adoption of the merger agreement and approval of the merger. In addition, you may be asked to consider and vote on a proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger. This proxy statement contains important information about the merger and the special meeting, and you should read it carefully in its entirety. Finally, you may be asked to consider and vote on the transaction of other business that may properly come before the special meeting or any adjournments of the special meeting.
		Your vote is very important, regardless of the number of shares you hold. We encourage you to vote as soon as possible. The enclosed voting materials allow you to vote your shares without attending the special meeting of Osteotech stockholders. For more specific information on how to vote, please see the questions and answers below and the section of this proxy statement entitled “The Special Meeting” beginning on page • .

Q:

As an Osteotech stockholder, what will I receive upon completion of the merger?

A:

If the merger is completed, you will receive merger consideration of $6.50 in cash for each share of our common stock that you own, without interest, and less any applicable withholding taxes, subject to decrease under the limited circumstances described in the section of this proxy statement entitled “The Merger

Agreement—Effect on Capital Stock” beginning on page • (which amount, subject to such adjustment, we sometimes refer to in this proxy statement as the “ merger consideration ”).

Q:		What do I need to do now?
A:		After you carefully read this proxy statement in its entirety, including its annexes, consider how the merger affects you and then vote or provide voting instructions as described in this proxy statement. We encourage you to read the proxy statement carefully and in its entirety, consider your options, and please vote as your vote is very important.
Q:		Who can vote and attend the special meeting?
A:		All stockholders of record as of the close of business on • , 2010, the record date set by our board of directors for the special meeting, are entitled to receive notice of and to attend and vote at the special meeting, or any postponement or adjournment thereof. If you want to attend the special meeting and your shares are held in an account at a brokerage firm, bank or other nominee, you must bring to the special meeting a proxy from the record holder (your broker, bank or nominee) of the shares authorizing you to vote at the special meeting.
Q:		What constitutes a quorum at the special meeting?
A:		In order to constitute a quorum and to transact business at the special meeting, one-third of the issued and outstanding shares of our common stock on the record date must be represented at the special meeting, either in person or by proxy. Shares represented by proxies that reflect votes to abstain will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum.
Q:		What vote of our stockholders is required to adopt the merger agreement and approve the merger?
A:		The affirmative vote of the holders of a majority of the outstanding shares of our common stock at the close of business on the record date is required to adopt the merger agreement and approve the merger. Because the vote is based on the number of votes entitled to be cast, rather than the number of votes cast, failure to vote your shares and voting to abstain will have the same effect as voting against the adoption of the merger agreement and approval of the merger — so please vote .
Q:		How can the special meeting be adjourned, if necessary, to solicit additional proxies if there are not sufficient votes at the time of the special meeting in favor of adoption of the merger agreement and approval of the merger?
A:		The affirmative vote of the holders of a majority of the shares of our common stock present in person or by proxy at the special meeting and entitled to vote may adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger. Failure to vote your shares will not affect the outcome of any proposal to adjourn the special meeting, but will reduce the number of votes required to approve such a proposal. Voting to abstain will have the same effect as voting against any proposal by our board of directors to adjourn the special meeting. No proxy that is specifically marked “AGAINST” approval of the merger proposal will be voted in favor of the meeting adjournment proposal, unless it is specifically marked “FOR” the discretionary authority to adjourn the special meeting to a later date.
Q:		How many votes do Osteotech stockholders have?
A:		Each holder of record of our common stock as of • , 2010 will be entitled to one vote for each share of common stock held on that date.
Q:		How does Osteotech’s Board of Directors recommend I vote?
A:		At a meeting held on August 16, 2010, our board of directors unanimously approved the merger agreement and the transactions contemplated by the merger agreement and determined that the merger agreement and the merger are advisable, fair to and in the best interests of Osteotech and its stockholders. Accordingly, our board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement

		and approval of the merger. Our board of directors also recommends that Osteotech stockholders vote “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger.
Q:		How do I vote my shares?

A:		If you are a stockholder of record as of the record date, you can give a proxy to be voted at the special meeting by completing, signing and mailing the enclosed proxy card. If you hold your shares in “street name” through a broker, bank or nominee, you must vote your shares in the manner prescribed by your broker, bank or other nominee. Your broker, bank or other nominee has enclosed or otherwise provided a voting instruction card for you to use in directing the broker, bank or nominee how to vote your shares. If you fail to instruct your broker, bank or other nominee how to vote your shares, your shares will not be voted, so please instruct your bank, broker or other nominee how you would like to vote your shares.
Q:		May I vote my shares in person at the meeting?
A:		Yes. If you are a stockholder of record as of the record date, you may attend the special meeting and vote your shares in person, rather than signing and returning your proxy card. If your shares are held in “street name,” you must request a legal proxy from the broker, bank or nominee that holds your shares and present that proxy and proof of identification at the special meeting to vote your shares.
Q:		May I change my vote after I have submitted my proxy?
A:		Yes. You may revoke your proxy and change your vote at any time before your proxy is voted at the special meeting. If you are a stockholder of record, you may revoke your proxy and change your vote by submitting a later-dated proxy by mail or by voting in person at the meeting. Attending the meeting will not revoke your proxy unless you specifically request to revoke it. If you hold your shares in “street name” and have instructed a broker, bank or nominee to vote your shares, you must follow directions received from your broker, bank or nominee to change those instructions.
Q:		If my broker, bank or nominee holds my shares in “street name,” will they vote my shares for me?
A:		Your broker, bank or nominee will not be able to vote your shares without instructions from you. You should instruct your broker, bank or nominee to vote your shares following the procedure provided by your broker, bank or nominee. Without instructions, your shares will not be voted, which will have the effect of a vote “AGAINST” the adoption of the merger agreement and approval of the merger.
Q:		What should I do if I receive more than one set of voting materials?
A:		You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card or voting instruction card that you receive.
Q:		What happens if I do not vote, whether by attending the special meeting in person or returning a proxy card?
A:		The failure to vote will have the same effect as voting “AGAINST” the approval of the adoption of the merger agreement and approval of the merger. The failure to vote will not affect the outcome of any proposal by our board of directors to adjourn the special meeting but will reduce the number of votes required to approve such a proposal.

Q:

Is the merger expected to be taxable to me for United States Federal income tax purposes?

A:		Yes. The exchange of shares of our common stock for the merger consideration pursuant to the merger will be a taxable transaction for United States Federal income tax purposes. For United States Federal income tax purposes, generally you will recognize capital gain or capital loss equal to the difference, if any, between the amount of cash received in the merger and your adjusted tax basis in the shares surrendered.
		You should read the section of this proxy statement entitled “The Merger—Material United States Federal Income Tax Consequences” beginning on page • for a more complete discussion of the United States Federal income tax consequences of the merger. Tax matters can be complicated, and the tax consequences of the merger to you will depend on your particular tax situation. You should consult your own tax advisor as to the tax consequences of the merger to you.

Q:

Should I send in my Osteotech stock certificates now?

A:		No. Promptly after the merger is completed, each holder of record immediately prior to the effective time of the merger will be sent a letter of transmittal, together with written instructions for exchanging share certificates (or for the surrender of book-entry shares, as applicable) for the applicable portion of the merger consideration in cash. These instructions will tell you how and where to send in your certificates in exchange for your cash consideration. You will receive your cash payment after the paying agent receives your stock certificates and any other documents requested in the instructions.
Q:		What happens if I sell my shares before the special meeting?
A:		The record date of the special meeting is earlier than the special meeting and the date that the merger is expected to be completed. If you transfer your shares of our common stock after the record date but before the special meeting, you will retain your right to vote at the special meeting, but you will have transferred the right to receive the merger consideration. In order to receive the merger consideration, you must hold your shares of common stock through completion of the merger.
Q:		When do you expect the merger to be completed?
A:		We are working toward completing the merger as promptly as practicable. However, we cannot predict the exact timing of the completion of the merger because, in addition to obtaining stockholder approval, we must satisfy all other closing conditions contained in the merger agreement, including the expiration or termination of applicable regulatory waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (including the rules and regulations promulgated thereunder), which we refer to as the “ HSR Act, ” and any other applicable foreign antitrust laws.
Q:		Is Medtronic’s obligation to complete the merger subject to Medtronic’s receipt of financing?
A:		No. Medtronic must complete the merger regardless of whether it receives financing.
Q:		Will I have the right to have my shares appraised in connection with the merger?
A:		Yes, but only if you strictly comply with the requirements of Delaware law. If you wish to exercise your appraisal rights, you must not vote in favor of adoption of the merger agreement or in favor of the merger, you must continuously hold your             shares from the date of your demand for appraisal through the effective time of the merger and you must strictly follow the other requirements of Delaware law. For additional information about appraisal rights, see the section of this proxy statement entitled “The Merger—Appraisal Rights” beginning on page • and Annex C hereto. Failure to strictly comply with Delaware law will result in a loss of the right of appraisal.

Q:		How will the merger affect my options and restricted stock units?
A:		If we complete the merger, at the effective time of the merger:

	•		each outstanding option to purchase shares of our common stock (an “ Option ”) will be accelerated and canceled in exchange for the right to receive an amount equal to the total number of shares subject to the Option as of the effective time of the merger multiplied by the excess, if any, of the merger consideration over the exercise price, less any applicable withholding taxes; and
	•		each outstanding unvested restricted stock unit representing shares of our common stock (a “ Restricted Stock Unit ”) will be accelerated and canceled in exchange for the right to receive an amount equal to the total number of shares represented by such Restricted Stock Unit as of the effective time of the merger multiplied by the merger consideration, less any applicable withholding taxes.

Q:

Do any Osteotech directors or officers have interests in the merger that may differ from those of Osteotech stockholders?

A:		Yes. Our executive officers are parties to employment agreements and change in control agreements which provide for payments and benefits to the executive officers in certain circumstances if there is a separation of their employment. In addition, options held by our executive officers and directors at the effective time of the merger will be canceled in exchange for the right to receive a cash payment equal to the merger consideration less the per share exercise price associated with such Options. Restricted Stock Units held by our executive officers and directors at the effective time of the merger will also be accelerated and canceled in exchange for the right to receive the merger consideration in cash for each share of our common stock subject to issuance upon settlement of the Restricted Stock Units. In addition, indemnification agreements and insurance for our directors and officers will be continued if the merger is completed. See “The Merger—Interests of our Directors and Executive Officers in the Merger” beginning on page • for a description of these agreements as well as a description of other rights of our directors and executive officers that come into effect in connection with the merger.
Q:		Who is paying for this proxy solicitation?
A:		Osteotech is conducting this proxy solicitation and will bear the cost of soliciting proxies, including the preparation, assembly, printing and mailing of this proxy statement, the proxy card and any additional information furnished to stockholders. In addition, we have engaged Georgeson Inc. to assist in the solicitation of proxies and to provide related advice and informational support for a services fee, plus customary disbursements, which are not expected to exceed $ • in total. We also reimburse brokerage houses and other custodians, nominees and fiduciaries for their costs of forwarding proxy and solicitation materials to beneficial owners.
Q:		What happens if the merger is not completed?
A:		If the merger agreement is not adopted by our stockholders and the merger is not approved, or if the merger is not completed for any other reason, our stockholders will not receive any payment for their shares in connection with the merger. Instead, we will remain an independent public company and our common stock will continue to be listed and traded on the NASDAQ Global Market under the “OSTE” symbol, subject to compliance with continued listing requirements. See “The Merger—Delisting and Deregistration of Our Common Stock” beginning on page • for more information.
Q:		Why did you postpone the 2010 annual meeting of stockholders?
A:		The merger agreement required us, within one day following the date of the merger agreement, to postpone the 2010 annual meeting stockholders, and to not convene the annual meeting until such time as the special meeting (and any postponement or adjournment thereof) has been completed, unless otherwise ordered by a court of competent jurisdiction.

Q:		If the merger is not completed, when will you hold an annual meeting to elect directors?
A:		If the merger agreement is not adopted by our stockholders and the merger is not approved, or if the merger is not completed for any other reason, we will hold an annual meeting of stockholders to elect directors as soon as practicable.
Q:		Who can help answer my questions?

A:		If you would like additional copies, without charge, of this proxy statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:
		Osteotech, Inc. Attn: Assistant Secretary 51 James Way Eatontown, New Jersey 07724 Telephone: (732) 542-2800 or our proxy solicitor, Georgeson 199 Water Street New York, New York 10038 Call toll free (877)-278-4775 or e-mail osteotech.info@georgeson.com

SUMMARY TERM SHEET

      This summary term sheet highlights the most material terms of the proposed merger. While this summary term sheet describes the principal terms of the merger, this summary term sheet may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger, you should carefully read this entire proxy statement and the documents to which we have referred you. In particular, you should read the annexes attached to this proxy statement, including the Agreement and Plan of Merger, dated as of August 16, 2010, by and among Osteotech, Medtronic, MSD and Merger Sub, which is attached as Annex A to this proxy statement. We have included page references in parentheses to direct you to a more complete description of the topics presented in this summary term sheet. See the section of this proxy statement entitled “Where You Can Find More Information” beginning on page • .

The Parties to the Merger

      Osteotech, Inc.

     51 James Way

     Eatontown, New Jersey 07724

     Telephone: (732) 542-2800

     Osteotech was incorporated in Delaware in 1986 and our common stock is quoted on the NASDAQ Global Market under the symbol “OSTE.” Osteotech develops innovative and efficacious biologic products for regenerative medicine. We provide biologic products for use in orthopedic, spinal, trauma, neurosurgical and oral/maxillofacial surgical procedures and our objective is to be a leader in the emerging field of biologic products for regenerative medicine which are utilized to assist the body with healing and restoration of function. Additional information regarding Osteotech is contained in our filings with the Securities and Exchange Commission, or the SEC. See the section of this proxy statement entitled “Where You Can Find More Information” beginning on page • .

      Medtronic, Inc.

     World Headquarters

     710 Medtronic Parkway

     Minneapolis, Minnesota 55432

     Telephone: (763) 514-4000

     Medtronic, Inc. was founded in 1949, incorporated as a Minnesota corporation in 1957, and today serves physicians, clinicians and patients in more than 120 countries worldwide. Medtronic is the global leader in medical technology, alleviating pain, restoring health, and extending life for millions of people around the world. Medtronic is committed to offering market-leading therapies to restore patients to fuller, healthier lives. With beginnings in the treatment of heart disease, Medtronic has expanded well beyond its historical core business and today provides a wide range of products and therapies that help solve many challenging, life-limiting medical conditions.

      Medtronic Sofamor Danek, Inc.

     c/o Medtronic, Inc.

     World Headquarters

     710 Medtronic Parkway

     Minneapolis, Minnesota 55432

     Telephone: (763) 514-4000

     Medtronic Sofamor Danek, Inc. is an Indiana corporation and a wholly owned subsidiary of Medtronic. MSD is focused on Medtronic’s spinal and biologics business.

      England Merger Corporation

     c/o Medtronic, Inc.

     World Headquarters

     710 Medtronic Parkway

     Minneapolis, Minnesota 55432

     Telephone: (763) 514-4000

     England Merger Corporation is a Delaware corporation and a wholly owned subsidiary of MSD. Merger Sub exists solely to facilitate the merger and has not engaged in any operations other than in connection with its formation and the negotiation and execution of the merger agreement.

The Merger (See Page • )

     This proxy statement relates to the proposed acquisition of us by Medtronic pursuant to an Agreement and Plan of Merger, dated as of August 16, 2010, among Medtronic, MSD, Merger Sub and us. We have attached a copy of this agreement, which we refer to as the merger agreement, as Annex A to this proxy statement. We encourage you to read the merger agreement in its entirety. Upon the terms and subject to the conditions of the merger agreement, Merger Sub will be merged with and into Osteotech. As a result of the merger, we will become a wholly owned indirect subsidiary of Medtronic.

Effect on Capital Stock (See Page • )

     If the merger is completed, you will receive the merger consideration (subject to decrease under the limited circumstances referred to below) in cash for each share of our common stock that you own immediately prior to the effective time of the merger, unless you exercise and perfect your appraisal rights under Delaware law. Upon completion of the merger, stockholders of Osteotech will no longer have any equity or ownership interest in Osteotech.

     As described in greater detail in the section of this proxy statement entitled “The Merger Agreement — Effect on Capital Stock” beginning on page • , pursuant to the merger agreement, the merger consideration of $6.50 per share is subject to decrease only if it were determined that (i) the number of outstanding shares of common stock as of immediately prior to the effective time of the merger exceeds 18,126,882 (provided that we will not be deemed to have exceeded this threshold to the extent any excess is the result of the proper exercise of Options or proper vesting of Restricted Stock Units between the date of the merger agreement and the effective time of the merger), (ii) as of immediately prior to the effective time of the merger, our outstanding Options (and any other outstanding stock rights) are exercisable to purchase more than 1,292,412 shares of our common stock in the aggregate, or the number of outstanding Restricted Stock Units as of immediately prior to the effective time of the merger exceeds 580,436, (iii) any outstanding Option is exercisable at a price that is lower than the exercise price disclosed to Medtronic, or (iv) the aggregate amount of third party expenses incurred by us in connection with the merger (excluding any amounts incurred by us as a result of additional requests for information under antitrust laws, security holder litigation or the receipt by us of any superior acquisition proposals) exceeds $4,868,400 (but only if such excess would result in a reduction to the price equal to more than $0.01 per share of common stock), and, but for the decrease, the aggregate consideration payable by Medtronic would exceed $123,249,643 plus the aggregate exercise price of all in the money Options outstanding as of the date of the merger agreement that are properly exercised between the date of the merger agreement and the effective time of the merger (which amount, in the aggregate, reflects merger consideration of $6.50 per share). Although between the date of the merger agreement and the effective time of the merger Options will be exercised and Restricted Stock Units will vest, we do not expect that the aggregate consideration payable by Medtronic will exceed the threshold amount set forth above.

Effect on Equity Awards (See Page • )

      Options

     Each Option that is outstanding immediately prior to the effective time of the merger will, at such time, be accelerated and canceled in exchange for the right to receive an amount equal to the total number of shares of common stock subject to the Option multiplied by the excess, if any, of the merger consideration over the exercise price of the Option, less applicable withholding taxes, if any.

      Restricted Stock Units

     Each unvested Restricted Stock Unit that is outstanding immediately prior to the effective time of the merger will, at such time, be accelerated and canceled in exchange for the right to receive an amount equal to the total number of shares of common stock represented by such Restricted Stock Unit as of the effective time of the merger, multiplied by the merger consideration, less applicable withholding taxes, if any.

The Merger Agreement (See Page • )

     The obligations of each of Medtronic and Merger Sub, on the one hand, and us, on the other hand, to complete the merger depend on the satisfaction or waiver, on or prior to the effective time of the merger, of a number of conditions, including:

	•		receipt of the required vote to adopt the merger agreement and approve the merger by our stockholders at the special meeting;
	•		the absence of any order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing completion of the merger and the requirement that no governmental entity shall have enacted, entered, promulgated or enforced any statute, rule, order or decree prohibiting the merger or making it illegal;
	•		expiration or termination of the applicable waiting period (or extension thereof) under applicable foreign antitrust laws and the HSR Act and receipt of any required approvals or clearances thereunder; and
	•		for each party, specified levels of compliance by the other with its representations, warranties and obligations under the merger agreement.

     The obligation of Medtronic and Merger Sub to complete the merger is subject to the following additional conditions:

	•		no material adverse effect (as defined in the merger agreement) shall have occurred on us since the date of the merger agreement;
	•		the aggregate amount of shares with respect to which appraisal is demanded shall not equal or exceed 10% of the number of shares of our common stock outstanding as of the record date for the special meeting;
	•		Medtronic receives a final statement reflecting all of our third party expenses (as defined in the merger agreement) incurred in connection with the merger agreement or the transactions contemplated by the merger agreement; and
	•		Medtronic receives pay-off letters from the holder of our secured debt showing all payments required to retire our indebtedness and release all related liens, and providing for termination of all agreements with us relating to such indebtedness.

     The merger is not conditioned upon Medtronic or Merger Sub obtaining financing.

      Termination

     The merger agreement may be terminated and the merger may be abandoned at any time prior to the effective time of the merger, regardless of whether our stockholders have adopted the merger agreement:

	•		by mutual written consent of Medtronic and us;
	•		by either Medtronic or us, under circumstances that involve any of the following:

	o		final, nonappealable action by any governmental entity prohibiting the merger;
	o		if the merger has not occurred on or before August 16, 2011 (subject to extension in certain circumstances); or
	o		if we do not obtain the required stockholder approval in favor of adoption of the merger agreement and approval of the merger;

•

by Medtronic, under circumstances that involve any of the following:

	o		our uncured or incurable breach of any of our representations, warranties, covenants or agreements in the merger agreement, which would result in the conditions to Medtronic’s obligation to complete the merger not being satisfied;
	o		our knowing and material breach of our obligations under the nonsolicitation provisions of the merger agreement or our obligations relating to obtaining the required stockholder approval; or
	o		an adverse change in the recommendation of our board of directors that our stockholders adopt the merger agreement and approve the merger, or the taking of various other actions by us or our board of directors relating to a competing acquisition proposal including if we engage in discussions relating to a competing acquisition proposal for longer than certain periods of time specified in the merger agreement;

•

by us, under circumstances that involve any of the following:

	o		the uncured or incurable breach by Medtronic or Merger Sub of any of their representations, warranties, covenants or agreements in the merger agreement, which would result in the conditions to our obligation to complete the merger not being satisfied; or
	o		our acceptance of a superior proposal in compliance with our nonsolicitation obligations, and payment to Medtronic of the $5,000,000 termination fee.

      Termination Fee; Expenses

     The merger agreement provides that we will be required to pay Medtronic a termination fee of $5,000,000 under circumstances that involve any of the following:

	•		the merger agreement is terminated for any of the following reasons, and we enter into an agreement with respect to, or consummate, any competing “acquisition proposal” (as defined in the merger agreement, subject to the references to “15%” in that definition being replaced by “50%”), within nine months after termination in the situations described in (i) and (ii) below and within 12 months after termination in the situation described in (iii) below: (i) because the merger has not occurred prior to August 16, 2011 without our having obtained the requisite stockholder approval; (ii) because our stockholders have failed to adopt the merger agreement and approve the merger at the special meeting; or (iii) because we have materially breached the merger agreement.
	•		Medtronic terminates the merger agreement as a result of an adverse change in the recommendation of our board of directors that our stockholders adopt the merger agreement and approve the merger, or the taking of various other actions by us or our board of directors relating to a competing acquisition proposal; or
	•		we terminate the merger agreement in connection with accepting a superior proposal.

     We are obligated to reimburse Medtronic for its reasonably documented out-of-pocket fees and expenses, up to a maximum of $3,000,000, upon termination for any of the reasons described in the first bullet point above. The reimbursement amount will be offset against any termination fee that subsequently becomes due.

      No Solicitation of Alternative Transactions

     The merger agreement contains restrictions on our ability to solicit or engage in discussions or negotiations with a third party with respect to a proposal to acquire a significant interest in us. Notwithstanding these restrictions, the merger agreement provides that under specified circumstances, if prior to the adoption of the merger agreement and approval of the merger by our stockholders, we receive an unsolicited acquisition proposal from a third party that our board of directors determines in good faith, after consultation with outside legal counsel and financial advisor, is or is reasonably likely to result in a superior proposal, we may, if our board of directors also determines in good faith (after receiving advice of outside legal counsel) that the failure to take such action would constitute a breach of

the board of directors’ fiduciary duties to our stockholders and if we provide Medtronic with at least two business days’ advance notice, furnish nonpublic information to that third party and engage in negotiations with that third party.

Recommendation of our Board of Directors (See Page • )

     After careful consideration of the factors described in the section of this proxy statement entitled “The Merger—Recommendation of our Board of Directors” beginning on page • , our board of directors unanimously:

	•		determined that the merger is advisable and fair to and in the best interests of Osteotech and its stockholders;
	•		authorized and approved the merger agreement and the other transactions contemplated by the merger agreement; and
	•		recommends that our stockholders adopt the merger agreement and approve the merger.

     Our board of directors also recommends that Osteotech stockholders vote “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger.

     See the section of this proxy statement entitled “The Merger—Recommendation of our Board of Directors” beginning on page • .

The Special Meeting (See Page • )

      Time, Date and Place . A special meeting of our stockholders will be held on • , 2010 at 9:00 a.m., local time, at our corporate office at 51 James Way, Eatontown, New Jersey 07724, to consider and vote upon a proposal to adopt the merger agreement and approve the merger and consider and vote upon a proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger, and to transact such other business as may properly come before the special meeting or any adjournments of the special meeting.

      Record Date and Voting Power . You are entitled to vote at the special meeting if you owned shares of our common stock at the close of business on • , 2010, the record date set by our board of directors for the special meeting. You will have one vote at the special meeting for each share of our common stock you owned at the close of business on the record date. As of the record date, there were • shares of our common stock outstanding and entitled to be voted at the special meeting. Holders of our common stock are entitled to cast a total of • votes at the special meeting.

      Required Vote . The adoption of the merger agreement and approval of the merger requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock as of the close of business on the record date. In addition, the affirmative vote of the holders of a majority of our shares of common stock present in person or represented by proxy at the special meeting and entitled to vote may approve any proposal by our board of directors to adjourn the special meeting to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger.

      Share Ownership of Directors and Management . As of the record date, our directors and executive officers and their affiliates owned approximately • % of the shares entitled to vote at the special meeting.

     See the section of this proxy statement entitled “The Special Meeting” beginning on page • .

Opinion of Osteotech’s Financial Advisor (See Page • )

     Deutsche Bank Securities Inc. (which we sometimes refer to as “ Deutsche Bank ”) acted as our financial advisor in connection with the proposed merger. We requested that Deutsche Bank, in its role as financial advisor, evaluate the fairness, from a financial point of view, of the consideration to be received by the holders of our common stock pursuant to the merger agreement. On August 16, 2010, Deutsche Bank delivered its oral opinion, which it

subsequently confirmed in writing, to our board of directors that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the consideration to be received by holders of our common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

     The full text of Deutsche Bank’s fairness opinion, which sets forth the assumptions made, matters considered and limits on the review undertaken by Deutsche Bank in rendering its opinion, is attached as Annex B to this proxy statement and is incorporated herein by reference. Our stockholders are urged to read the opinion in its entirety. Deutsche Bank provided its opinion for the information and assistance of our board of directors in connection with our consideration of the merger. The Deutsche Bank opinion does not address any other aspect of the merger and is not a recommendation to any holder of our common stock as to how to vote on the merger agreement or any other matter. All summaries of the opinion of Deutsche Bank set forth in this proxy statement are qualified in their entirety by reference to the full text of such opinion.

     As compensation for Deutsche Bank’s services in connection with the merger, Osteotech has agreed to pay a transaction fee of approximately $1.5 million contingent on the consummation of the merger. In addition, Osteotech has agreed to pay Deutsche Bank an opinion fee of $0.8 million upon delivery of its fairness opinion, which shall reduce the transaction fee paid in connection with the consummation of the merger. Regardless of whether the merger is consummated, Osteotech has agreed to reimburse Deutsche Bank for reasonable fees and disbursements of Deutsche Bank’s counsel and all of Deutsche Bank’s reasonable travel and other out-of-pocket expenses incurred in connection with the merger or otherwise arising out of the engagement of Deutsche Bank under the Engagement Letter. Osteotech has also agreed to indemnify Deutsche Bank and certain related persons to the full extent lawful against certain liabilities arising out of its engagement or the merger from and against certain liabilities.

     See the section of this proxy statement entitled “The Merger—Opinion of Deutsche Bank Securities Inc. “ beginning on page • .

Interests of our Directors and Executive Officers in the Merger (See Page • )

     When considering the recommendation by our board of directors to vote in favor of the adoption of the merger agreement and approval of the merger, you should be aware that a number of our executive officers and directors have interests in the merger that are different from yours, including, among others:

	•		executive officers are parties to employment agreements and change in control agreements which provide for payments and benefits to the executive officers in certain circumstances if there is a separation of their employment;
	•		all Options will be canceled in exchange for the right to receive an amount equal to the total number of shares of common stock subject to the Option multiplied by the excess, if any, of the merger consideration over the exercise price of the Option, less applicable withholding taxes, if any;
	•		Restricted Stock Units held by our executive officers and directors will be accelerated and canceled in exchange for the right to receive an amount equal to the total number of shares of common stock represented by such Restricted Stock Unit as of the effective time of the merger, multiplied by the merger consideration, less applicable withholding taxes, if any; and
	•		indemnification agreements and insurance for our current and former directors and officers will be continued if the merger is completed.

     See the section of this proxy statement entitled “The Merger—Interests of our Directors and Executive Officers in the Merger” beginning on page • .

Market Price and Dividend Data (See Page • )

     Our common stock is listed on the NASDAQ Global Market under the symbol “OSTE.” On August 16, 2010, the last full trading day prior to the public announcement of the proposed merger, our common stock closed at a price of $3.94. On • , 2010 the last practicable trading day prior to the printing of this proxy statement, our common

stock closed at a price of $ • . To date, we have not paid any dividends on our common stock. See the section of this proxy statement entitled “The Merger—Market Price and Dividend Data” beginning on page • .

Delisting and Deregistration of Osteotech’s Common Stock

     If the merger is completed, our common stock will no longer be traded on the NASDAQ Global Market and will be deregistered under the Securities Exchange Act of 1934, as amended, and we will no longer be required to file periodic reports with the SEC with respect to our shares of common stock.

     If the merger agreement is not adopted and the merger is not approved by our stockholders or if the merger is not completed for any other reason, our stockholders will not receive any payment for their shares in connection with the merger. Instead, we will remain an independent public company and our common stock will continue to be listed and traded on the NASDAQ Global Market, subject to compliance with continued listing requirements.

Material United States Federal Income Tax Consequences (See Page • )

     The exchange of shares of our common stock for the merger consideration will be a taxable transaction to our stockholders for United States Federal income tax purposes.

     You should read the section of this proxy statement entitled “The Merger—Material United States Federal Income Tax Consequences” beginning on page • for a more complete discussion of the federal income tax consequences of the merger. Tax matters can be complicated, and the tax consequences of the merger to you will depend on the facts of your own situation. You should consult your own tax advisor to fully understand the tax consequences to you.

Regulatory Matters (See Page • )

     We and Medtronic have agreed to use our reasonable best efforts to make any required submissions under the HSR Act, and any applicable foreign antitrust laws which we or Medtronic determine should be made with respect to the merger, the merger agreement, and the other transactions contemplated by the merger and the merger agreement. On • , 2010, we and Medtronic filed notification reports with the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission. We and Medtronic are also required to make a filing with the governmental authorities in Austria. See the section of this proxy statement entitled “The Merger — Regulatory Matters” beginning on page • .

Appraisal Rights (See Page • )

     Under Delaware law, if you do not vote in favor of adoption of the merger agreement and approval of the merger, if you continuously hold your shares from the date of your demand for appraisal through the effective time of the merger, and if you comply with all of the other statutory requirements of the Delaware General Corporation Law, you may elect to receive, in cash, the judicially determined fair value of your shares of stock in lieu of the merger consideration. ANY STOCKHOLDER CONTEMPLATING THE EXERCISE OF THESE APPRAISAL RIGHTS SHOULD REVIEW CAREFULLY THE PROVISIONS OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW (COPIES OF WHICH ARE ATTACHED AS ANNEX C TO THIS PROXY STATEMENT), PARTICULARLY THE SPECIFIC PROCEDURAL STEPS REQUIRED TO PERFECT SUCH RIGHTS. SUCH RIGHTS WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW ARE NOT FULLY AND PRECISELY SATISFIED. See the section of this proxy statement entitled “The Merger—Appraisal Rights” beginning on page • .

Paying Agent

      •  will act as the paying agent in connection with the merger.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     This proxy statement contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Words such as “estimate,” “project,” “predict,” “intend,” “plan,” “anticipate,” “believe,” “will,” “may,” “should,” “would,” and similar expressions are intended to identify forward-looking statements. These statements are based on the current expectations and beliefs of our management and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These statements are not guarantees of future performance, involve risks, uncertainties and assumptions that are difficult to predict, and are based upon assumptions as to future events that may not prove accurate. Therefore, actual outcomes and results may differ materially from what is expressed in the forward-looking statements. Such risks, uncertainties and assumptions include, but are not limited to: our ability to develop and introduce new products; differences in anticipated and actual product and service introduction dates; the ultimate success of those products in the marketplace; the continued acceptance and growth of current products and services; the impact of competitive products and services, the availability of sufficient quantities of suitable donated tissue and the success of cost control and margin improvement efforts; risk that announcement of the proposed merger will negatively affect our relationships with our customers, suppliers, and employees; other unexpected costs or liabilities resulting from the proposed merger; diversion of management’s attention from the operations of the business as a result of preparations for the proposed merger; our ability to satisfy the closing conditions to complete the proposed merger with Medtronic, including obtaining the requisite stockholder and regulatory approvals; and our exposure to litigation in connection with the proposed merger with Medtronic and the costs related thereto.

     In any forward-looking statement in which we express an expectation or belief as to future results, that expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement or expectation or belief will result or be achieved or accomplished. Risks and uncertainties could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties are detailed in various SEC filings made periodically by us, particularly our latest report on Form 10-K and subsequent report or reports on Form 10-Q, copies of which are available from us without charge or online at www.osteotech.com. Please review such filings and do not place undue reliance on these forward-looking statements.

     You should carefully consider the cautionary statements contained or referred to in this section in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We do not undertake any obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances that occur after the date of this proxy statement or to reflect the occurrence of unanticipated events.

THE SPECIAL MEETING

     The enclosed proxy is solicited on behalf of the board of directors of Osteotech for use at the special meeting of stockholders or at any adjournment or postponement thereof.

Date, Time and Place

     We will hold the special meeting at • , 2010 at 9:00 a.m., local time, at our corporate office at 51 James Way, Eatontown, New Jersey 07724.

Purpose of Special Meeting

     At the special meeting, we are asking holders of record of our common stock to consider and vote on the following proposals:

•

the adoption of the Agreement and Plan of Merger, dated as of August 16, 2010, by and among Medtronic, Inc., Medtronic Sofamor Danek, Inc., England Merger Corporation and Osteotech, Inc. and the approval of the merger (see the sections of this proxy statement entitled “The Merger” beginning on page • and “The Merger Agreement” beginning on page • );

	•		any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger; and
	•		to transact such other business as may properly come before the special meeting or any adjournments of the special meeting.

     We do not expect a vote to be taken on any other matters at the special meeting. If any other matters are properly presented at the special meeting for consideration, however, the holders of the proxies, if properly authorized, will have discretion to vote on these matters in accordance with their best judgment.

Recommendation of our Board of Directors

     After careful consideration, our board of directors determined that it is advisable, fair to and in the best interests of our stockholders for Osteotech to enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement.

      Our board of directors unanimously recommends that our stockholders vote “FOR” the proposal to adopt the merger agreement and approve the merger. Our board of directors also recommends that Osteotech stockholders vote “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger. Our board of directors will determine whether to make such a proposal to adjourn the special meeting in accordance with its obligations under the merger agreement and its fiduciary duties to our stockholders.

     In considering such recommendation, you should be aware that some of our directors and officers have interests in the merger that are different from, or in addition to, those of our stockholders generally. See the section of this proxy statement entitled “The Merger—Interests of our Directors and Executive Officers in the Merger” beginning on page • .

      If your submitted proxy does not specify how you want to vote your shares, your shares will be voted “FOR” the proposal to adopt the merger agreement and approve the merger and “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger.

Record Date; Stock Entitled to Vote; Quorum

     Only holders of record of our common stock at the close of business on • , 2010, the record date set by our board of directors, are entitled to notice of and to vote at the special meeting. On the record date, • shares of our common stock were issued and outstanding and held by approximately • holders of record.

     A quorum will be present at the special meeting if one-third of the issued and outstanding shares of our common stock on the record date is present in person or by proxy. In the event that a quorum is not present at the special meeting, it is expected that the meeting will be postponed to solicit additional proxies. Holders of record of our common stock on the record date are entitled to one vote per share at the special meeting on the proposals to adopt the merger agreement and approve the merger and adjourn the special meeting.

Votes Required

     The adoption of the merger agreement and approval of the merger requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock. If a stockholder votes to abstain or does not vote, either in person or by proxy, it will have the same effect as a vote against the adoption of the merger agreement and approval of the merger – so please vote . The affirmative vote of the holders of a majority of the shares of common stock of Osteotech present in person or represented by proxy at the special meeting and entitled to vote may adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger. If a stockholder does not vote, either in person or by proxy, such failure will not affect the outcome of any proposal to adjourn the special meeting, but will reduce the number of

votes required to approve such a proposal. If a stockholder votes to abstain, either in person or by proxy, it will count as a vote against any proposal to adjourn the special meeting.

Voting by Osteotech Directors and Executive Officers

     At the close of business on the record date, our directors and executive officers and their affiliates owned and were entitled to vote • shares of our common stock, which represented approximately • % of the shares of our common stock outstanding on that date. See the section of this proxy statement entitled “Security Ownership of Certain Beneficial Owners and Management.”

Voting of Proxies

     All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the holders. Properly executed proxies that do not contain voting instructions will be voted “FOR” the adoption of the merger agreement and approval of the merger and “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of approval of the merger agreement.

     Shares of our common stock represented at the special meeting but not voting, including shares of our common stock for which proxies have been received but for which stockholders have abstained, will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business.

     Only shares affirmatively voted for the adoption of the merger agreement and approval of the merger, including properly executed proxies that do not contain voting instructions, will be counted as favorable votes for that proposal. Only shares affirmatively voted for any proposal by our board of directors to adjourn the special meeting, including properly executed proxies that do not contain voting instructions, will be counted as favorable votes for such a proposal. No proxy that is specifically marked “AGAINST” adoption of the merger agreement and approval of the merger proposal will be voted in favor of the meeting adjournment proposal, unless it is specifically marked “FOR” the discretionary authority to adjourn the special meeting to a later date. If a stockholder does not vote, either in person or by proxy, or abstains from voting, it will effectively count as a vote “AGAINST” the adoption of the merger agreement and approval of the merger – so please vote. If a stockholder does not vote, either in person or by proxy, it will not affect the outcome of any proposal to adjourn the special meeting, but will reduce the number of votes required to approve any such proposal. Voting to abstain will have the same effect as voting against any proposal by our board of directors to adjourn the special meeting.

     Brokers who hold shares of our common stock in “street name” for customers who are the beneficial owners of such shares may not give a proxy to vote those customers’ shares in the absence of specific instructions from those customers. Any “broker non-votes” would be considered present for purposes of determining whether or not a quorum is present, but would not be considered entitled to vote on a particular proposal. Failing to instruct your broker on how to vote your shares on the proposal to adopt the merger agreement and approve the merger will have the same effect as a vote “AGAINST” such proposal – so please vote. Failing to instruct your broker on how to vote your shares on any proposal to adjourn the special meeting will have no effect on the outcome of such a proposal, but will reduce the number of votes required to approve that proposal.

Revocability of Proxies

     The grant of a proxy on the enclosed form of proxy does not preclude you from voting in person at the special meeting. If you are a stockholder of record you may revoke your proxy and change your vote at any time before your vote is counted at the special meeting by submitting a later-dated proxy by mail or by voting in person at the meeting. Attending the meeting will not revoke your proxy unless you specifically request to revoke it. To request an additional proxy card, or if you have any questions about the special meeting or how to vote or revoke your proxy, you should write to Osteotech, Inc., Attn: Assistant Secretary, 51 James Way, Eatontown, New Jersey 07724, or call (732) 542-2800. If you hold your shares in “street name” and have instructed a broker, bank or nominee to vote your shares, you must follow directions received from your broker, bank or nominee to change those instructions.

Solicitation of Proxies

     Osteotech is conducting this proxy solicitation and will bear the cost of soliciting proxies, including the preparation, assembly, printing and mailing of this proxy statement, the proxy card and any additional information furnished to stockholders. In addition, Osteotech has engaged Georgeson Inc. to assist in the solicitation of proxies and to provide related advice and informational support for a services fee, plus customary disbursements, which are not expected to exceed $ • in total. We also reimburse brokerage houses and other custodians, nominees and fiduciaries for their costs of forwarding proxy and solicitation materials to beneficial owners.

     Stockholders should not send stock certificates with their proxies. A letter of transmittal with instructions for the surrender of stock certificates will be mailed to our stockholders as soon as practicable after completion of the merger. The instructions will provide that, at the election of the stockholder, certificates may be surrendered, and the merger consideration in exchange for the certificates may be collected, by hand delivery.

Appraisal Rights

     Under applicable Delaware law, if you do not vote to adopt the merger agreement and approve the merger and if you follow certain procedures in lieu of receiving the merger consideration, you have the right to receive payment in cash for the “fair value” of your shares of our common stock. If you are seeking to exercise your statutory appraisal rights, you must follow certain procedures as outlined in Section 262 of the Delaware General Corporation Law. Merely voting against the adoption of the merger agreement and approval of the merger will not preserve your appraisal rights. See the section of this proxy statement entitled “The Merger—Appraisal Rights” beginning on page • .

Assistance

     If you need assistance submitting your proxy or have questions regarding the Osteotech special meeting, please contact:

     Osteotech, Inc.

     Attn: Assistant Secretary

     51 James Way

     Eatontown, New Jersey 07724

     Telephone: (732) 542-2800

     or our proxy solicitor,

     Georgeson

     199 Water Street

     New York, New York 10038

     Call toll free (877)-278-4775 or e-mail osteotech.info@georgeson.com

THE MERGER

      The following discussion summarizes the material terms of the proposed merger. Stockholders should read the merger agreement, which is a attached as Annex A to this proxy statement, carefully and in its entirety.

General Description of the Merger

     Pursuant to the merger agreement, at the effective time of the merger, Merger Sub will merge with and into Osteotech, with Osteotech surviving as a wholly owned indirect subsidiary of Medtronic (which we sometimes refer to in this proxy statement as the “ surviving corporation ”).

Merger Consideration

     If we complete the merger, each share of our common stock issued and outstanding immediately prior to the effective time of the merger, other than:

	•		shares held by Medtronic or any direct or indirect subsidiary of Medtronic or us, all of which will be canceled in the merger and
	•		shares held by stockholders who properly exercise appraisal rights, whom we refer to as “ dissenting stockholders ”

will be automatically converted into and represent the right to receive the merger consideration (subject to decrease under the limited circumstances referred to below) as described in the section of this proxy statement entitled “The Merger Agreement—Effect on Capital Stock” beginning on page • . After the merger is effective, stockholders will no longer have any rights with respect to their shares, except for the right to receive the merger consideration. No interest will accrue or be paid with respect to the merger consideration. At the effective time of the merger, shares of our common stock will no longer be outstanding, will automatically be canceled and will cease to exist. Pursuant to the merger agreement, the merger consideration is subject to decrease only if it were determined that (i) the number of outstanding shares of common stock as of immediately prior to the effective time of the merger exceeds 18,126,882 (provided that we will not be deemed to have exceeded this threshold to the extent any excess is the result of the proper exercise of Options or proper vesting of Restricted Stock Units between the date of the merger agreement and the effective time of the merger), (ii) as of immediately prior to the effective time of the merger, our outstanding Options (and any other outstanding stock rights) are exercisable to purchase more than 1,292,412 shares of our common stock in the aggregate, or the number of outstanding Restricted Stock Units as of immediately prior to the effective time of the merger exceeds 580,436, (iii) any outstanding Option is exercisable at a price that is lower than the exercise price disclosed to Medtronic, or (iv) the aggregate amount of third party expenses incurred by us in connection with the merger (excluding any amounts incurred by us as a result of additional requests for information under antitrust laws, security holder litigation or the receipt by us of any superior acquisition proposals) exceeds $4,868,400 (but only if such excess would result in a reduction to the price equal to more than $0.01 per share of common stock), and, but for the decrease, the aggregate consideration payable by Medtronic would exceed $123,249,643 plus the aggregate exercise price of all in the money Options outstanding as of the date of the merger agreement that are properly exercised between the date of the merger agreement and the effective time of the merger (which amount, in the aggregate, reflects merger consideration of $6.50 per share). Additional detail regarding the calculation of the amount of any such decrease is provided in the section of this proxy statement entitled “The Merger Agreement — Effect on Capital Stock — Common Stock” beginning on page • .

     While we cannot guarantee that the merger consideration will be $6.50 per share and that such amount will not be decreased pursuant to the merger agreement provisions described above, as of the date of this proxy statement we do not anticipate that there will be any such decrease. We do not believe the actual numbers of outstanding common stock, Options or Restricted Stock Units will fall outside the permitted margins, as explained in more detail in the in the section of this proxy statement entitled “The Merger Agreement — Effect on Capital Stock” beginning on page • . In addition, with respect to third party expenses, absent unforeseen circumstances that require us to devote significant legal and accounting resources toward the merger in the future, we do not expect the amount of third party expenses incurred by us as of the date of this proxy statement, together with the amount of such expenses we expect to incur prior to the closing of the merger, will exceed $4,868,400. Furthermore, the merger consideration will not be decreased as the result of our exceeding the $4,868,400 cap to the extent that the excess would result in a reduction to the merger consideration of $0.01 or less. Even if we did exceed the aforementioned cap, the effect of any such excess would be distributed over all of the shares, Options and Restricted Stock Units whose holders are entitled to receive merger consideration therefor. See the section of this proxy statement entitled “The Merger Agreement — Effect on Capital Stock — Common Stock” for further discussion of the potential effects of exceeding these thresholds.

     Stockholders of record will not receive the merger consideration until they surrender their stock certificates for certificated shares to the paying agent for exchange or comply with the procedures for lost certificates (each as described below), and otherwise comply with the procedures described under “The Merger Agreement—Procedures for Exchange of Certificates” beginning on page • .

     Medtronic has represented to us under the merger agreement that it has, and will have as of the effective time of the merger, sufficient funds to complete the merger and pay all amounts it is required to pay under the merger agreement.

     If we complete the merger, at the effective time of the merger:

	•		each outstanding Option will be canceled in exchange for the right to receive an amount equal to the total number of shares of common stock subject to the Option multiplied by the excess, if any, of the merger consideration over the exercise price of the Option, less applicable withholding taxes, if any; and
	•		each outstanding Restricted Stock Unit will be accelerated and canceled in exchange for the right to receive an amount equal to the total number of shares of common stock represented by such Restricted Stock Unit multiplied by the merger consideration, less applicable withholding taxes, if any.

Background to the Merger

     Over the past several years, our board of directors has periodically reviewed and evaluated, with our management, the strategic direction for Osteotech in light of our financial performance and market, economic, competitive and other conditions and developments. These discussions have included the possibility of, among other things, business combinations involving Osteotech and other companies, particularly in view of the increasing competition in our industry. In an effort to maximize shareholder value, our management and board of directors have also regularly considered a variety of business strategies, including the continued pursuit of organic growth, strategic alliances and acquisitions, as well as regularly reviewing our prospects as an independent public company.

     On several occasions during 2008 and the first half of 2009, members of our senior management, including Sam Owusu-Akyaw, our President and Chief Executive Officer, and Mark H. Burroughs, our Executive Vice President and Chief Financial Officer, met with representatives of Party A, a private equity firm, at its request for general discussions regarding our business and their potential interest in making an investment in the company. In a meeting with Mr. Burroughs on February 25, 2009, representatives of Party A proposed acquiring us in a going-private transaction. A confidentiality agreement was executed with Party A on March 31, 2009.

     In late February 2009, a representative of Medtronic initiated a discussion with two of our executives about our products and technologies at the American Academy of Orthopaedic Surgeons conference (which we sometimes refer to in this proxy statement as the “AAOS”) in Las Vegas, Nevada. On March 30, 2009, Mr. Owusu-Akyaw had a telephone call with a representative of Medtronic to discuss distribution arrangements and business integration possibilities. In April 2009, Medtronic executed a confidentiality agreement with us. On April 20, 2009, Mr. Owusu-Akyaw and Kai Lo, our Vice President of Business Development, met with representatives of Medtronic to share presentations on the businesses of the two companies and to discuss the products, technologies and distribution networks of the two companies, as well as opportunities for collaboration.

     In May 2009, Mr. Owusu-Akyaw received an unsolicited phone call from a representative of a healthcare company and a tissue organization working in tandem, which we refer to collectively as Party B, during which the representative of Party B expressed an interest in exploring a possible acquisition of Osteotech. On May 27, 2009, we entered into a confidentiality agreement with Party B. From late May 2009 through late July 2009, Party B conducted a high-level due diligence review of Osteotech, including an all day meeting with Kenneth P. Fallon, III, the Chairman of Osteotech’s board of directors, Mr. Owusu-Akyaw, other members of our management team and representatives of Deutsche Bank Securities Inc. (which we sometimes refer to in this proxy statement as “Deutsche Bank”) on June 23, 2009.

     In the spring of 2009, to assist Osteotech with the periodic review of its strategic direction and with responding to the overtures made by Medtronic and Parties A and B and other contacts regarding potential strategic transactions, our board of directors sought the assistance and advice of a financial advisor. After conducting a selection process, our board of directors determined on May 26, 2009, to retain Deutsche Bank as its financial advisor.

     At a regularly scheduled board of directors meeting held on June 18, 2009, representatives of Deutsche Bank made a presentation to our board on the process for a sale of the company, and representatives of our outside legal counsel, Dorsey & Whitney LLP (which we sometimes refer to in this proxy statement as “Dorsey & Whitney”), reviewed the fiduciary duties of the board in connection with a sale of the company. Representatives of Deutsche Bank and our board of directors also discussed the parties that might be interested in pursuing an acquisition of Osteotech, noting that Medtronic, Party A and Party B were, in their opinion, the most likely acquirers of Osteotech.

Members of our board of directors and management also expressed and discussed their significant concern regarding the risk of our distributors learning from rumors in the market or leaks of information by potential bidders that we were conducting a sale process, and the substantial negative impact that could have on our financial performance. At this meeting, our board of directors also asked Mr. Fallon, the Chairman of our board and one of our independent directors, in consultation with management, to lead this process of evaluating our strategic alternatives, while management was tasked with focusing on our pending new product introductions and other business processes. We entered into an engagement letter with Deutsche Bank on June 30, 2009.

     On July 1, 2009, Party A visited Osteotech’s headquarters for a presentation by our management team, including Messrs. Owusu-Akyaw and Burroughs, on Osteotech’s business. At this meeting, Party A once again indicated an interest in acquiring us. Soon after that meeting, management informed Mr. Fallon about Party A’s interest. Mr. Fallon then spoke further with representatives of Party A about its interest, and expressed his concerns regarding the ability of Party A to acquire Osteotech without a financing contingency.

     On July 13, 2009, we entered into a confidentiality and standstill agreement with Party A.

     On July 13, 2009, Deutsche Bank opened our electronic data room and uploaded the initial diligence documents. On July 14, Party B was granted access to our electronic data room.

     From late June through mid-July 2009, representatives of Deutsche Bank had several conversations with representatives of Medtronic relating to Medtronic’s interest in acquiring us, and questions that Medtronic had about our financial reports and distributor relationships. On July 15, 2009, following its review of preliminary due diligence materials provided by Osteotech, Medtronic submitted a non-binding, preliminary indication of interest to acquire us at a purchase price between $5.25 and $6.00.

     On July 20, 2009, a representative of Party A informed a representative of Deutsche Bank that they were not interested in pursuing an acquisition of Osteotech, because they were aware that other parties were interested in Osteotech and Party A did not want to participate in a competitive sale process.

     On July 23, 2009, Party B indicated to representatives of Deutsche Bank that, subject to completion of diligence and board approval, they were considering a proposal to acquire us at a purchase price between $5.00 and $7.00 per share.

     On August 5, 2009, Medtronic was granted access to a limited set of documents in the electronic data room and continued its preliminary due diligence on Osteotech. Thereafter, until early October 2009, representatives of Deutsche Bank had several conversations with representatives of Medtronic to discuss diligence matters and Medtronic’s proposed valuation range as indicated in its July 15, 2009 indication of interest.

     From late July through the end of 2009, Mr. Fallon and members of our management team, including Messrs. Owusu-Akyaw and Burroughs, participated in multiple discussions and telephone conferences with the interested parties, including Party A, to provide them with information regarding our business and financial condition. In addition, our management continued to load documents into the electronic data room in response to numerous requests from the bidders. Our board also held three regular meetings during this period at which Mr. Fallon updated the board on the status of the process, the outstanding indications of interest and the anticipated next steps in the process.

     On September 3, 2009, the Chief Financial Officer of Party B called Mr. Fallon indicating a serious interest on the part of Party B in pursuing a transaction with Osteotech.

     On September 9, 2009, Mr. Fallon met with the Chief Financial Officer of Party B at Party B’s corporate headquarters. At this meeting, they discussed our business and Party B’s Chief Financial Officer reaffirmed Party B’s strong interest in acquiring us.

     On September 18, 2009, Party B submitted a detailed due diligence request list to us.

     On October 12, 2009, a representative of Deutsche Bank spoke with a representative of Medtronic, expressing the view of our board of directors that the purchase price set forth in Medtronic’s preliminary indication of interest

was too low. Thereafter, on October 14, 2009, Medtronic submitted a revised indication of interest to acquire us at a purchase price between $6.00 and $7.00 per share. On October 14, 2009, a representative of Deutsche Bank contacted a representative of Medtronic to inform him that our board of directors would not be willing to entertain a bid in Medtronic’s range.

     On October 19, 2009, a representative of Medtronic contacted a representative of Deutsche Bank to inform him that, given the disagreement on pricing, Medtronic was not interested in moving forward. On October 20, 2009, Mr. Fallon contacted the representative of Medtronic to discuss Osteotech’s products and Mr. Fallon’s view that Medtronic was not sufficiently valuing certain of those products in connection with Medtronic’s recent valuation range.

     On October 26, 2009, Mr. Fallon contacted the Chief Financial Officer of Party B to discuss the due diligence items that Party B had requested. Mr. Fallon indicated that we would be willing to provide certain of the items requested by Party B, but that Party B would have to provide us with a firm, written indication of interest before we would respond to the balance of their request. On November 11, 2009, certain items requested by Party B were made available to Party B in the electronic data room.

     From November 10, 2009 through November 14, 2009, members of our management team participated in the North American Spine Society 2009 Annual Meeting (which we sometimes refer to in this proxy statement as the “NASS”) in San Francisco, California, at which we highlighted three new procedure-specific MagniFuse™ bone grafting products for different spine therapy areas. Representatives of Party B visited Osteotech’s booth at the NASS to discuss these new products.

     On December 9, 2009, a representative of Deutsche Bank contacted a representative of Medtronic to inquire whether Medtronic was willing to confirm its indication of interest to acquire us at a purchase price between $6.00 and $7.00 per share, as set forth in Medtronic’s October 14, 2009 letter, and recommence its due diligence review of Osteotech.

     On December 15, 2009, a representative of Deutsche Bank had a conversation with a representative of Medtronic to inquire regarding the status of Medtronic’s interest. During that conversation, the Medtronic representative indicated that Medtronic was considering whether to proceed to the next phase of due diligence and that Medtronic would not make that decision until January 2010.

     On January 15, 2010 a representative of Deutsche Bank informed a representative of Medtronic that our board of directors would be meeting on January 22, 2010 and requested an updated written indication of interest before that meeting.

     On January 15, 2010, Mr. Fallon sent a letter to the Chief Financial Officer of Party B, advising him that our board of directors would be meeting the following week and that, if Party B was interested in acquiring us, that Party B should provide its indication of interest in writing in advance of that board meeting.

     On January 20, 2010, Medtronic submitted a third letter, confirming its October 14, 2009 indication of interest to acquire us at a purchase price between $6.00 and $7.00 per share.

     On January 21, 2010, Party B submitted a written indication of interest proposing to acquire us at a purchase price between $5.00 and $7.00 per share.

     On January 22, 2010, our board of directors held a special meeting to consider, among other items, the indications of interest submitted by Medtronic and Party B. Messrs. Fallon and Owusu-Akyaw updated our board of directors on the discussions with Medtronic and Party B and representatives of Deutsche Bank provided their initial analyses of the indications of interest submitted by Medtronic and Party B. Based on these discussions and the indications of interest, our board of directors decided that it would be advisable to permit Medtronic and Party B to conduct more detailed due diligence on us, with a view toward making more firm offers.

     On January 22, 2010, at the direction of our board of directors, a representative of Deutsche Bank contacted a representative of Party B to inform him that the low end of Party B’s range was not competitive with other offers that we had received. After that date, Party B did not access the electronic data room again.

     On January 26, 2010, we gave Medtronic access to certain additional data room files which had not previously been accessible by Medtronic.

     On January 29, 2010, a representative of Party C informed Mr. Fallon that Party C would like to meet with us at the AAOS conference in New Orleans, Louisiana, in mid-March to discuss a possible strategic transaction, but that it was not interested in signing a confidentiality agreement and participating in a sale process in our anticipated timeframe. Subsequently, a meeting was arranged between representatives of us and Party C for a mutual discussion of general technology and product issues. Following this meeting, Party C did not follow up with us to arrange for the proposed meeting at AAOS or otherwise with respect to a potential strategic transaction.

     On February 3, 2010, a representative of Party A contacted Mr. Burroughs to inquire about the status of our sale process and to arrange for a meeting with Mr. Fallon.

     Effective as of February 8, 2010, we entered into a Joint Interest and Confidentiality Agreement with Medtronic to preserve our attorney client privilege with respect to certain documents and other information requested for review by Medtronic. On February 9 and 10, 2010, several representatives from Medtronic spent two days in offsite meetings with their respective counterparts from our management team. On February 17, 2010, representatives of Medtronic visited New Jersey for an additional day of offsite meetings.

     On February 11, 2010, Mr. Fallon met with a representative of Party A to provide an update on our sale process. At that meeting, the representative of Party A indicated that Party A was again interested in acquiring us. The representative telephoned Mr. Fallon the following week to reiterate Party A’s interest. On February 23, 2010, Party A submitted a written indication of interest proposing an all cash offer at an enterprise valuation of $65 to $80 million, without specifying an implied price per share. On February 26, 2010, after Mr. Fallon indicated to Party A that the proposed purchase price was not sufficient to take the proposal to our board, Party A submitted a revised indication of interest proposing an all cash offer at an enterprise value of $80 to $130 million, again without specifying an implied price per share. Both of these letters also proposed a period of 45 days of exclusivity and a financing contingency. Party A was informed by Mr. Fallon that our board of directors was not prepared to grant Party A any period of exclusivity at this time. On March 2, 2010, Party A submitted a third letter expressing an interest in acquiring us at a total enterprise value of $80 to $130 million, again without specifying an implied price per share and without requesting exclusivity. Party A was given access to the electronic data room as of March 4, 2010.

     On March 3, 2010, a draft merger agreement prepared by Dorsey & Whitney was made available in the electronic data room for Medtronic and Party B to review. On March 22, 2010, this draft merger agreement was also made available in the electronic data room for Party A to review.

     From March 9, 2010 through March 12, 2010, representatives from Osteotech, including Messrs. Fallon and Burroughs and Robert M. Wynalek, President of our Domestic Division, attended the AAOS conference. On March 9, 2010, Mr. Wynalek attended a meeting with representatives of Medtronic’s marketing team to discuss due diligence matters. On March 11, 2010, Messrs. Burroughs and Wynalek had dinner with representatives of Party A and received an additional data request for a previously-scheduled meeting set for March 19, 2010. Also on March 11, 2010, Mr. Fallon met with a representative of Party A to discuss the process being conducted by Osteotech.

     During the week of March 15, 2010, representatives of Medtronic conducted onsite diligence visits at our facilities for a tissue processing audit and manufacturing, finance and accounting reviews.

     On March 19, 2010, members of our senior management and representatives of Deutsche Bank participated in an in-person meeting with representatives of Party A in Red Bank, New Jersey. During this meeting, members of our senior management provided a detailed review of all aspects of our business, long-range strategic plan and product portfolio, and Party A was provided with the opportunity to ask members of our senior management questions about our business, operating results and financial condition.

     On March 20, 2010, a representative of Deutsche Bank spoke with a representative of Medtronic to inquire about the status of Medtronic’s due diligence review and when Medtronic would be in a position to provide a mark-up of the draft merger agreement. Medtronic indicated that it would not be in a position to mark up the merger

agreement prior to our March 30, 2010 board meeting, as previously requested, as they were still conducting their due diligence review.

     On March 24, 2010, members of our senior management and a representative of Deutsche Bank participated in an in-person meeting with representatives of Party A in Party A’s offices in New York, New York, and engaged in a detailed discussion about our business and future strategic opportunities. In several follow up conversations between a representative of Party A and Mr. Fallon, the representative of Party A informed Mr. Fallon that it would require an extended exclusivity period to move forward. Mr. Fallon told Party A that Osteotech could not grant it exclusivity at this time, and encouraged Party A to continue its due diligence review and to avail itself of the electronic data room.

     On March 29, 2010, Medtronic submitted a fourth letter, reaffirming its indication of interest to acquire us at a purchase price between $6.00 and $7.00 per share. Medtronic also stated that it expected to deliver a draft of the merger agreement by April 30, 2010 and that it anticipated its diligence review of Osteotech would require at least 30 days to complete prior to signing.

     On that same date, in a conversation with Mr. Fallon, Party A expressed an interest in acquiring us at a total enterprise value of $100 to $130 million, again without specifying an implied price per share, and indicated that Party A would need an additional 4-6 weeks prior to executing a merger agreement in order to complete its confirmatory due diligence review.

     On March 30, 2010, at a regularly scheduled meeting of our board of directors, Messrs. Fallon and Owusu-Akyaw reviewed with our board of directors the financial and other aspects of the latest indications of interest received from Medtronic and Party A and the recent lack of activity in the process by Party B, and provided an overall update on the sale process. After this meeting, at the direction of our board of directors, Deutsche Bank informed Medtronic and Mr. Fallon informed Party A that the lower end of their respective ranges of valuation would not be acceptable to the board.

     During the periods from April 6 to April 9, 2010 and April 12 to April 13, 2010, representatives of Medtronic performed onsite due diligence at our facilities in France and Bulgaria, respectively.

     On April 7, 2010, a representative of Party A contacted Mr. Fallon and informed Mr. Fallon that Party A had again decided that it could not continue in the sale process because Party A had concluded that it could not proceed at the top end of the range it had most recently communicated. Later that day, Party A’s access to the electronic data room was terminated.

     On April 21 and 22, 2010, Medtronic performed onsite due diligence at our facilities in New Jersey.

     On April 21, 2010, Fredrikson & Byron, P.A., outside counsel to Medtronic (which we sometimes refer to in this proxy statement as “Fredrikson & Byron”), sent Dorsey & Whitney a list of legal issues regarding the draft merger agreement prepared by Dorsey & Whitney.

     On April 23, 2010, a representative of Party A contacted Mr. Fallon, indicating that it remained interested in acquiring us. During that conversation, Mr. Fallon encouraged the representative of Party A to indicate its interest in writing including a proposed price per share. On April 27, 2010, the representative of Party A sent an e-mail to Mr. Fallon, stating that Party A was prepared to move forward with negotiations based upon an enterprise valuation range of Osteotech between $115 and $130 million without specifying an implied price per share. On April 28, 2010, Mr. Fallon contacted the representative of Party A to inform him that we were expecting a merger agreement draft from another party in the sale process within the next week and that if Party A was truly interested in acquiring us, that it needed to move quickly.

     On April 30, 2010, Fredrikson & Byron sent Dorsey & Whitney a draft merger agreement.

     On May 6, 2010, Mr. Fallon sent a letter to the representative of Party A, reviewing the history of our discussions with Party A, the extensive information provided and access to management granted to Party A, and requesting that Party A submit a firm offer with a certain price per share, subject to confirmatory due diligence with a defined timeline to closing. Later that day, Party A’s access to the electronic data room was reestablished.

     On May 7, 2010, Party A’s intellectual property counsel contacted a representative from Dorsey & Whitney to discuss certain intellectual property matters, but requested that the Dorsey & Whitney representative not disclose any confidential information.

     On May 7, 2010, a representative of Deutsche Bank, at the direction of our board of directors, informed a representative of Medtronic that Osteotech would not respond to Medtronic’s draft merger agreement until Medtronic had provided an indication of interest at a firm price.

     On May 11, 2010, Party A submitted a new acquisition proposal to acquire us at an enterprise valuation of $110 million, again without specifying an implied price per share. On May 14, 2010, counsel for Party A submitted a mark-up of the merger agreement that had been prepared by Dorsey & Whitney.

     On May 18, 2010, Mr. Fallon sent a letter to a representative of Party A, advising Party A that the enterprise valuation in its letter of May 11, 2010, which was below the low end of the range in Party A’s prior e-mail, was not acceptable.

     On May 27, 2010, Medtronic submitted a revised indication of interest, proposing a per share purchase price of $6.20, subject to further confirmatory due diligence and the negotiation and execution of a definitive merger agreement.

     On June 3, 2010, our board of directors held a special meeting, at which representatives of Deutsche Bank reviewed Party A’s and Medtronic’s latest indications of interest, provided an update on the sale process and reviewed the results of various valuation methodologies. Representatives of Dorsey & Whitney reviewed the terms of the latest draft of the merger agreement provided by Medtronic. After a lengthy discussion, the board of directors directed Mr. Fallon, management and Deutsche Bank to continue negotiating with Medtronic and Party A and to counter with requests that the parties improve their proposed purchase prices to $6.80 per share, with a termination fee of $3.25 million and an execution date on or before June 24, 2010. The board of directors also directed Mr. Fallon, management and Deutsche Bank not to share certain sensitive information relating to intellectual property matters, clinical trial data, physician meetings and other matters with either party unless and until it had substantially improved its bid.

     On June 4, 2010, representatives of Dorsey & Whitney forwarded a revised draft of the merger agreement to representatives of Fredrikson & Byron. Also on that date, representatives of Deutsche Bank, at the direction of our board of directors, contacted Medtronic to communicate that Osteotech was ready to move forward with finalizing the merger agreement, provided that Medtronic increase its purchase price to $6.80 per share, agree to a termination fee of $3.25 million, and agree to execute the definitive merger agreement by June 24, 2010.

     On June 4, 2010, Mr. Fallon called a representative of Party A and indicated that we would be prepared to move forward if Party A made an offer at the high end of the range of enterprise value it had proposed on April 27, 2010 (which we estimated would equate to approximately $6.80 per share), with a $3.25 million termination fee and an execution date on or before June 24, 2010.

     On June 10, 2010, Medtronic responded by indicating that it was not inclined to increase its proposed purchase price of $6.20 per share, and that it would require exclusivity, a “market” termination fee and a purchase price adjustment in the event that third party transaction expenses exceeded an agreed-upon cap. Medtronic also indicated that it would not be able to complete its due diligence review by June 24, 2010, and that it anticipated that review would not be complete until early July 2010.

     On June 11, 2010, Party A submitted an acquisition proposal to acquire us at a purchase price of $6.65 per share based on an enterprise valuation of $128 million. This proposal was conditioned on us satisfying certain cash and debt levels at closing, our cancellation of certain change of control agreements between us and certain officers of the company, the cancellation of certain restricted stock units granted in April 2010 and the successful negotiation of contracts with our executive team. The letter also stated that Party A did not foresee any delay in funding of the transaction, but did not provide any commitment regarding financing.

     On June 11, 2010, a representative of Deutsche Bank contacted a representative of Medtronic to inform them that Medtronic’s latest offer was not the highest offer.

     On June 15, 2010, our board of directors held a special meeting to review and discuss Medtronic’s and Party A’s latest proposals. The board of directors, after noting that the sale process had been underway for over a year and the concern that one or more of the parties could withdraw from the process, directed Mr. Fallon, management and Deutsche Bank to bring the sale process to a close by having the parties submit their best and final proposals by June 18, 2010, after which the board of directors would review and proceed with one party. Later that day, at the direction of our board of directors, a representative of Deutsche Bank contacted a representative of Medtronic to inform them that our board of directors was seeking Medtronic’s best and final offer by June 18, 2010.

     On June 16, 2010, Mr. Fallon sent a letter to Party A, requesting that Party A clarify the amount of time Party A would need to complete its due diligence review and advising Party A that the conditions set forth in its latest proposal were not acceptable. Mr. Fallon also requested that Party A submit its best and final offer no later than June 18, 2010 and informed Party A that we planned to proceed, after review of final proposals, with one party to negotiate and execute a definitive merger agreement. Later that day, Party A submitted a revised acquisition proposal to acquire us at a purchase price of $5.94 per share based on an enterprise valuation of $128 million and subject to the same conditions that were in its June 11, 2010 proposal, except that it assumed the change in control agreements and restricted stock units granted in April 2010 would remain outstanding.

     On June 17, 2010, representatives of Deutsche Bank contacted representatives of Party A to discuss Party A’s revised proposal and to inform Party A that our board of directors had serious concerns regarding the uncertainty of Party A’s ability to finance the acquisition, as well as the conditionality of the proposal relating to our satisfying certain cash and debt levels at closing, our cancellation of certain change of control agreements between us and certain officers of the company and our cancellation of certain restricted stock units granted in April 2010.

     On June 18, 2010, Party A submitted a revised acquisition proposal to acquire us at a purchase price between $5.94 and $6.65 per share depending on whether or not its conditions regarding the change in control agreements and restricted stock units were satisfied, and the values Party A allocated to those change in control agreements and restricted stock units. The proposal also specified a certain net debt position that was to be met at closing, consistent with its prior condition regarding cash and debt levels that were to be met at closing, but clarified that variances to our net debt position would lead to an adjustment in Party A’s purchase price. The proposal also failed to address the financing concerns communicated by Deutsche Bank on June 17, 2010.

     Also on June 19, 2010, Medtronic submitted an updated letter, dated June 18, 2010, indicating its interest to acquire us at a purchase price of $6.50 per share and requesting an exclusivity period of 45 days. Medtronic also indicated that it would require a termination fee equal to 4% of the merger consideration and a cap on third party transaction expenses.

     On June 21, 2010, our board of directors held a special meeting to review the best and final proposals received from Medtronic and Party A. Deutsche Bank provided an overview of the sale process, updated our board of directors on the discussions with Medtronic and Party A, and provided its analyses of the proposals submitted by Medtronic and Party A and its preliminary analysis of Osteotech’s valuation. At the meeting, Dorsey & Whitney again reviewed for the directors their fiduciary responsibilities in connection with a possible sale of Osteotech. After a lengthy discussion, our board of directors determined that Medtronic’s offer was superior to Party A’s offer, taking into consideration the different conditions imposed on the offers by each of the bidders, and the certainty of financing offered by Medtronic’s proposal. Accordingly, our board of directors decided that the Medtronic offer was the superior offer and determined to enter into exclusive discussions with Medtronic, but only for a 30-day exclusivity period. The board of directors then directed representatives of Deutsche Bank and Dorsey & Whitney to negotiate the terms of exclusivity and treatment of third party expenses prior to entering into a non-binding indication of interest with Medtronic.

     From June 22, 2010 through June 29, 2010, representatives of Dorsey & Whitney and Deutsche Bank discussed and negotiated the terms of exclusivity and the treatment of third party expenses with Medtronic and its counsel.

     On June 23, 2010, Mr. Fallon contacted a representative of Party A to inform him that our board of directors had decided to move forward with a superior proposal from another party on an exclusive basis to work towards a definitive agreement. That same day, Party A’s access to the electronic data room was again terminated. Later that evening, a representative of Party A sent an e-mail to Mr. Fallon indicating that Party A was prepared to execute a definitive purchase agreement by June 24, 2010, but provided no details on its proposal.

     On June 24, 2010, Mr. Fallon contacted the representative of Party A to let them know that our board of directors had determined that Party A’s last proposal was inferior to the proposal we received from another party, taking into consideration the price and conditionality included in Party A’s proposal, and that Party A had not addressed the concerns that the board of directors had with Party A’s proposal relating to its conditionality regarding the satisfaction of change in control agreements and the cancellation of restricted stock units, or the availability of Party A’s financing.

     On June 25, 2010, Party A sent another proposal to acquire us that continued to be subject to maximum debt and minimum cash conditions which, if not satisfied, would result in a purchase price adjustment, and in which the conditions noted in previous proposals related to our satisfaction of change in control agreements or the cancellation of restricted stock units had been removed. Although the proposed purchase price was $6.80 per share, Deutsche Bank estimated that the implied per share value of this offer was actually $6.53 to $6.62 based on the proposed purchase price adjustment provision and assumptions ranging from conservative to aggressive. The proposal was also subject to the condition that the parties execute a definitive agreement before the financial markets opened on June 28, 2010, and did not address the uncertainty regarding financing of Party A’s proposal. Later that day, representatives of Deutsche Bank contacted representatives of Party A to discuss Party A’s revised proposal.

     On June 26, 2010, representatives of Dorsey & Whitney held several conversations with Party A’s legal counsel to clarify certain issues related to Party A’s proposal and expressed concerns relating to Party A’s financing. Party A’s counsel confirmed that the contracting entity in the merger would be a newly-formed, shell company with no guarantee of the shell company’s obligations by Party A. Later that day, Party A’s counsel sent a letter to Dorsey & Whitney to, among other things, recap the conversation from earlier in the day and indicate Party A’s continued interest in pursuing an acquisition of Osteotech.

     On June 27, 2010, Party A’s counsel sent another letter to Dorsey & Whitney in which it indicated, among other things, that Party A would be unwilling to fully guarantee the shell company’s obligations, but that Party A would agree to a reverse termination fee, guaranteed by Party A, as sole recourse in the event of a breach of the agreement by the shell company. Later that day, after consultation with Mr. Fallon, representatives of Dorsey & Whitney contacted Party A’s counsel and informed them that a reverse termination fee as the only recourse was not sufficient and that our board of directors was seeking a full guarantee of the shell company’s obligations by Party A. Later that afternoon, Party A’s counsel sent another letter to Dorsey & Whitney in which it declined to provide a full guarantee and urged our board of directors to reconsider Party A’s proposal. That same day, Mr. Fallon contacted a representative of Party A and indicated that a reverse termination fee as the sole recourse would not be sufficient, particularly in light of the proposal we had from another party which did not have any financing contingency. During that conversation, the representative of Party A indicated that Party A might be willing to agree to a reverse termination fee as high as 10% of the purchase price.

     That evening, our board of directors held a special meeting to further discuss Party A’s proposal and to compare that proposal to Medtronic’s latest proposal. After a lengthy discussion, the board of directors determined that a 10% reverse termination fee did not lead to a proposal that was superior to Medtronic’s proposal, but that if Party A were willing to provide a full guarantee of its shell company’s obligations under a definitive merger agreement, then the board of directors would be prepared to move quickly toward negotiating and executing a definitive agreement with Party A. At the conclusion of the meeting, the board of directors directed Mr. Fallon to convey this message to Party A.

     On the morning of June 28, 2010, Mr. Fallon contacted a representative of Party A to inform them of the position of the board of directors relating to the guarantee. The representative of Party A indicated that they would consider this position and respond in the coming days. Later that day, Party A’s counsel sent a letter to Dorsey & Whitney, indicating that Party A was willing to raise the reverse termination fee to $13 million, but that Party A continued to refuse to provide a full guarantee of the shell company’s obligations.

     On June 29, 2010, our board of directors held a special meeting to further discuss Party A’s latest proposal and to compare that proposal to Medtronic’s proposal. Our board reviewed the terms of the Medtronic indication of interest as negotiated which included the addition of a 20% buffer on top of the third party expense budget to reduce the likelihood that any price adjustment would be required. Our board also reviewed the terms of the latest offer from Party A, noting in particular that although a reverse termination fee had been added, Party A had refused to provide a full guarantee of the acquisition shell company’s obligations under the merger agreement and had failed to

provide any information on the availability of Party A’s financing. During this meeting, a representative of Party A held a telephone conference with Mr. Fallon and representatives of Deutsche Bank and Dorsey & Whitney in which the representative indicated that Party A was willing to increase the reverse termination fee to $50 million, but that Party A continued to refuse to make a full guarantee of the shell company’s obligations and was only willing to provide a guarantee of the $50 million termination fee. After further discussion, the board determined that it needed to see Party A’s new proposal in writing in order to conclude its consideration of the two proposals and make a decision between the two bidders.

     On the morning of June 30, 2010, the representative of Party A sent a letter to Mr. Fallon confirming Party A’s new proposal to increase the reverse termination fee to $50 million and that it would also expect a purchase price adjustment in the event that cash at the closing of the transaction was below its previously specified amount. That evening, our board of directors held a special meeting to discuss the revised terms of Party A’s proposal. After a lengthy discussion of the pros and cons of the terms of Party A’s proposal and Medtronic’s proposal, including the lack of any commitment by Party A regarding its financing, the relative certainty of closing a deal with either party, the anticipated complications in negotiating a definitive agreement with Party A, including in particular the reverse termination fee, and the concern that further delay in execution of an indication of interest with Medtronic could put the Medtronic offer at risk, the board of directors determined that the Medtronic proposal was superior to Party A’s proposal and directed Mr. Fallon and management to conclude the negotiations with Medtronic and enter into exclusivity with Medtronic, with the expectation of executing a definitive merger agreement by July 23, 2010.

     Late in the evening of June 30, 2010, we entered into a non-binding letter with Medtronic, which included Medtronic’s indication of interest to acquire us at a purchase price of $6.50 per share and an exclusivity period set to expire on July 22, 2010. The letter also required a $5 million termination fee and a purchase price adjustment in the event that third party transaction expenses exceeded a certain threshold.

     On July 1, 2010, Mr. Fallon sent a letter to the representative of Party A to inform them that we had entered into exclusive discussions with the other party. Mr. Fallon’s letter further informed Party A that, under the terms of this exclusivity agreement, any proposals we received during the exclusivity period would need to be disclosed to the other party.

     Also on that day, representatives of Fredrikson & Byron forwarded a revised draft of the merger agreement to representatives of Dorsey & Whitney.

     Between July 1, 2010 and July 16, 2010, representatives of Dorsey & Whitney and Fredrikson & Byron held numerous telephone conferences and exchanged numerous e-mail messages regarding the merger agreement and related due diligence issues and exchanged numerous drafts of the merger agreement and related disclosure letter. During this time period, our management team provided additional information to Medtronic regarding our products, business, operations and financial condition. Also, on July 5 and 6, 2010, representatives of Medtronic visited our facilities in New Jersey to conduct a quality systems review of our research and development activities.

     On July 16, 2010, representatives of Medtronic contacted representatives of Deutsche Bank to inform them that Medtronic would not be ready to sign the merger agreement by July 23, 2010, as previously discussed by the parties, due to ongoing due diligence and revisions to the merger agreement and related documents. The representatives of Medtronic told us that they would work with us to complete their due diligence by July 29, 2010, but that they would not require us to extend the exclusivity period under the letter of intent beyond its expiration on July 22, 2010.

     On July 19, 2010, our board of directors held a special meeting to discuss the status of the transaction, the delay in signing an agreement and the pending expiration of the exclusivity period under the letter of intent. Before and after this meeting, representatives of Dorsey & Whitney and Fredrikson & Byron continued to work on outstanding issues in the draft merger agreement and related documents and our management team continued to provide additional diligence materials to Medtronic.

     On July 23, 2010, Mr. Fallon contacted a representative of Party A to inform him that our period of exclusivity had expired with the other party, and that while we still expected to sign an agreement shortly with the other party, we were free to have discussions with Party A to the extent they continued to be interested in acquiring us.

     On July 27, 2010, a representative of Medtronic told representatives of Deutsche Bank that Medtronic would need to conduct additional follow-up due diligence and would not be ready to sign the merger agreement by July 29, 2010 as previously planned. Also on July 27, 2010, our board of directors met to discuss the status of the transaction and the additional delay in signing of the merger agreement with Medtronic.

     From July 26, 2010 through August 5, 2010, Party A and its counsel traded numerous letters with Mr. Fallon and representatives of Dorsey & Whitney regarding our sale process. Throughout that period, Party A continued to state that it was willing to do a deal at the high end of its previous range, but stated that the prior proposal of a $50 million reverse termination fee was not on the table and declined to commit to a specific price. On August 4, 2010, Dorsey & Whitney provided a draft merger agreement and disclosure schedules to Party A’s counsel. On August 5, 2010, Messrs. Fallon and Burroughs, Stephen S. Galliker, a member of our board of directors, and representatives of Party A, Party A’s counsel, Deutsche Bank and Dorsey & Whitney held a telephone conference to discuss Party A’s interest in acquiring us. During that telephone conference, Party A indicated that it would be interested in acquiring us at a purchase price of $5.50 per share and that it wanted to enter into exclusive discussions through August 23, 2010. The call ended after Mr. Fallon told the representatives of Party A that this proposed purchase price was not competitive with our pending offer from the other party.

     On August 3, 2010, a representative of Medtronic contacted Mr. Fallon to provide assurances that Medtronic was focused on completing its diligence review as quickly as possible and getting the acquisition completed.

     On August 9, 2010, we released our earnings for the second quarter of 2010, withdrew our guidance for fiscal year 2010 and, as part of our discussion of our earnings and guidance, disclosed that we had engaged Deutsche Bank in 2009 to assist in the identification and evaluation of our strategic alternatives. During the week following this announcement, representatives of Deutsche Bank received three exploratory calls from or on behalf of companies inquiring about the status of our evaluation of strategic alternatives. None of these callers indicated that they were preparing to submit an offer for the company, but that they were inquiring about the status of any pending negotiations. Deutsche Bank informed the callers that the process had been ongoing for some time and that they would be contacted if a determination was made to expand the process to include discussions with additional parties.

     On August 10, 2010, a representative of Medtronic contacted Mr. Fallon to tell him that Medtronic was now ready to finalize the merger agreement and related documents. He indicated that Medtronic anticipated being ready to sign and announce the transaction early the following week.

     On the morning of August 11, 2010, representatives of Dorsey & Whitney and Fredrikson & Byron held a telephone conference to discuss the revised draft of the merger agreement previously circulated by Dorsey & Whitney. That evening, representatives of Fredrikson & Byron forwarded a revised draft of the merger agreement to representatives of Dorsey & Whitney.

     Between August 12, 2010 and August 15, 2010, representatives of Dorsey & Whitney and Fredrikson & Bryon held numerous conference calls to discuss the remaining open issues in the merger agreement.

     On August 16, 2010 at approximately 1:00 p.m., our board of directors held a board meeting to consider the proposed merger, including the merger agreement. Mr. Fallon opened the meeting by reviewing and discussing with the members of the board the results of the most recent discussions with Party A. Representatives of Deutsche Bank then provided an overview of the sale process and reviewed with the board Deutsche Bank’s financial analysis of the proposed merger. At the conclusion of its presentation, Deutsche Bank delivered its oral opinion to our board of directors (subsequently confirmed in writing) to the effect that, as of the date of its opinion, and subject to and based on the factors, assumptions, limitations and qualifications set forth in its opinion, the consideration to be paid to the holders of Osteotech’s common stock in the proposed merger was fair, from a financial point of view, to such holders. See “The Merger — Opinion of Deutsche Bank Securities, Inc.” Next, representatives of Dorsey & Whitney reviewed for the members of our board their fiduciary duties owed to our stockholders in connection with a potential business combination, updated the board regarding its analysis of the antitrust considerations relating to the merger, and then reviewed with the board the proposed terms of the merger agreement. The members of the board then discussed the proposed terms of the merger and the merger agreement in detail, in addition to various matters associated with announcement of the deal and potential risks that may be faced by us between signing and closing. Finally, representatives of Dorsey & Whitney reviewed for the board the resolutions proposed for adoption at the meeting.

     After this review, the board unanimously approved the merger agreement, determined to recommend that our stockholders vote for the adoption of the merger agreement and the approval of the merger, and authorized Mr. Fallon and our officers to execute the merger agreement and proceed with the merger. During the evening of August 16, 2010, we, Medtronic and our respective legal counsel finalized the merger agreement and related documents, and a joint press release, and exchanged executed signature pages to the merger agreement. Also on August 16, 2010, we entered into an amendment of our stockholder rights plan, which caused the stockholder rights plan to be inapplicable to the merger agreement and the transactions contemplated by it, and to terminate the rights plan and cancel the rights thereunder upon the consummation of the merger.

     On August 17, 2010, we issued a joint press release with Medtronic announcing the execution of the merger agreement.

Recommendation of our Board of Directors

      Reasons for the Merger . In the course of reaching its decision to approve the merger and enter into the merger agreement, our board of directors consulted with our management, outside legal counsel and our financial advisor, and reviewed a significant amount of information and considered a number of factors, including, among others, the following factors:

	•		historical financial information concerning our business, management, financial performance and conditions, technology, operations, prospects and competitive position, and the nature of our business and the industry in which we compete;
	•		our need for additional capital to pursue a hybrid distribution strategy, including the expansion of our direct sales force, marketing and other personnel that would work with, and in combination with, sales agencies and distributors, and the further expansion of future research and development initiatives;
	•		other strategic alternatives available to us, including remaining an independent company or seeking a combination with another company, and the risks and uncertainties associated with these alternatives;
	•		management’s dealings with other likely business combination partners both in the past and during the course of the negotiations with Medtronic;
	•		the likelihood that a third party would complete a transaction at a higher price than the merger consideration offered by Medtronic, and our board’s belief that there was a significant risk of damage to our competitive position and on-going operations if we conducted a more public sale process;
	•		the current and prospective environment in which we operate, including national and local economic conditions and the competitive environment; and the likely effect of these factors on our potential growth, development, productivity, profitability and strategic options;
	•		the likelihood that the merger would be completed, including the likelihood that the regulatory and stockholder approvals needed to complete the merger will be obtained;
	•		current financial market conditions and historical market prices, volatility and trading information with respect to our common stock; and
	•		the consideration to be received by our stockholders in the merger, including the desirability of an all cash transaction given recent volatility in the equity markets.

     Our board of directors also identified and considered a number of positive factors supporting its decision to approve the merger and enter into the merger agreement, including, but not limited to, the following, all of which led our board of directors to conclude that the merger presented an opportunity for our stockholders to realize greater value than the value likely to be realized by stockholders in the event we remained independent:

•

discussions with our management team regarding our business, financial performance and condition, technology, operations, competitive position, business strategy, strategic objectives and options and

			prospects, including our potential sales growth, as well as the risk involved in achieving these prospects; the nature of our business and the industry in which we compete; and current industry, economic and global market conditions, both on a historical and on a prospective basis;
	•		a review of the possible alternatives to a sale of Osteotech, including remaining independent and growing our business organically, through the enhancement and expansion of our sales, marketing and research and development strategies and initiatives, pursuing a strategy of growth through acquisitions or pursuing corporate alliances, the dilutive effect to our stockholders of raising the capital necessary to pursue such alternatives, the timing and likelihood of actually achieving additional value from these alternatives, and our board of directors’ assessment that none of these alternatives was reasonably likely to result in value for our stockholders greater than the consideration to be received by our stockholders in the merger;
	•		the risks associated with remaining an independent company, including the increased competition from competing products and technologies either currently on the market or currently under development, the significant cost of complying with our obligations as a publicly traded company, our anticipated operating performance and a review of ongoing product development initiatives;
	•		the risks associated with regulatory compliance, including regulatory delays related to our emerging technologies, including our BioGenesis™ Dural Regeneration Matrix (formerly Duratech™ BioRegeneration Matrix);
	•		the risks associated with Medicare and non-U.S. reimbursement rates, as well as the risks associated with reduced health care spending resulting from the recent global economic slowdown, higher than normal unemployment rates and, potentially, future reductions in health care spending as a result of health care reform legislation;
	•		the current and historical market prices of our common stock, and the current and historical market prices of our common stock relative to those of other industry participants and general market indices, including the fact that the merger consideration to be paid in the merger represented an approximate 69% premium over the closing price of our common stock on August 13, 2010 (the last trading day prior to the execution of the merger agreement) and an approximate 81% premium over the volume weighted average price of our common stock during the 30 calendar day period ending August 13, 2010;
	•		the opinion of Deutsche Bank, to our board of directors to the effect that, as of August 16, 2010, and based upon and subject to the factors and assumptions set forth in its opinion, the consideration to be received by holders of our common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders, as more fully described in the section of this proxy statement entitled “The Merger—Opinion of Deutsche Bank Securities, Inc.” beginning on page • . The full text of the written opinion of Deutsche Bank, dated August 16, 2010, which sets forth the assumptions made, matters considered and limits on the review undertaken, is attached as Annex B to this proxy statement and is incorporated by reference in its entirety to this proxy statement;
	•		the belief of our board of directors that the merger consideration represented the highest consideration that Medtronic was willing to pay, and the highest per share value obtainable on the date of signing;
	•		the companies that would be most likely to have an interest in combining with us, the price each might be willing to pay and their ability to complete a transaction;
	•		the ability of our stockholders to exercise appraisal rights in connection with the merger, as described in “The Merger—Appraisal Rights” beginning on page • ;
	•		the fact that the merger consideration is all cash, which provides certainty of value to our stockholders, compared to a transaction involving all stock consideration or a mixture of stock and cash;

•

the terms and conditions of the merger agreement, as reviewed by our board of directors with our outside legal advisors, including:

	o		the structure of the merger;
	o		the representations and warranties;
	o		the conditions to our and Medtronic’s respective obligations;
	o		the ability of our board of directors, under specified circumstances, to furnish information to and conduct negotiations with a third party and, upon the payment to Medtronic of a termination fee of $5,000,000, to terminate the merger agreement to accept a superior proposal;
	o		the likelihood that the merger would be consummated in light of the conditions to Medtronic’s obligation to complete the merger, Medtronic’s financial capability and the absence of any financing condition to Medtronic’s obligation to complete the merger; and
	o		the negotiated exclusions to the definition of a “material adverse effect” in the merger agreement.

     In the course of its deliberations, our board of directors also identified and considered a variety of risks and other countervailing factors, including:

	•		the fact that we will no longer exist as an independent company and our stockholders will no longer participate in any future growth as an independent company or any synergies resulting from the merger;
	•		the possibility of disruption to our operations following announcement of the merger, and the resulting effect on us if the merger does not close, including the diversion of management and employee attention, potential employee attrition, disruption of our sales channels, the potential effect on business and customer relationships, and the fact that we would have shared some of our confidential information with a competitor of ours;
	•		that, under the terms of the merger agreement, we will be required to pay Medtronic a termination fee if we terminate the merger agreement to accept a superior proposal for a business combination or acquisition of us, and under a number of other circumstances, and that our obligation to pay the termination fee might discourage other parties from proposing to acquire us;
	•		the challenges associated with seeking the regulatory approvals required to complete the merger in a timely manner;
	•		the fact that gains from a cash merger would be taxable to our stockholders for United States Federal income tax purposes;
	•		the interests of our executive officers and directors in the merger described under “The Merger—Interests of our Executive Officers and Directors in the Merger” beginning on page • , including the provisions of our officers’ employment and change in control agreements;
	•		that, while the merger is expected to be completed, there can be no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied, and as a result, it is possible that the merger may not be completed, even if the merger agreement is adopted by our stockholders. See the section of this proxy statement entitled “The Merger Agreement—Conditions to Completion of the Merger” beginning on page • ; and
	•		the restrictions on the conduct of our business prior to the completion of the merger, requiring us to conduct our business in the ordinary course, subject to specific limitations, which may delay or prevent us from undertaking business opportunities that may arise pending completion of the merger.

     While our board of directors considered potentially negative and potentially positive factors, the board of directors concluded that overall, the potentially positive factors outweighed the potentially negative factors.

     The preceding discussion is not meant to be an exhaustive description of the information and factors considered by our board of directors, but is believed to address the material information and factors considered. Our board of directors collectively reached the unanimous decision to approve the merger agreement in light of the factors described above and other factors that each member of the board of directors felt were appropriate. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, many of which are qualitative or difficult to quantify, and the quality and amount of information considered, our board of directors did not find it practicable to and did not make specific assessments of, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. In considering the factors described above, individual members of the board may have given different weight to different factors.

      Board of Directors Recommendation . After careful consideration, and taking into account all of the factors outlined above, our board of directors unanimously determined that the merger is advisable and fair to and in the best interests of Osteotech and its stockholders, and authorized and approved the merger agreement and the other transactions contemplated by the merger agreement, and our board of directors unanimously recommends that our stockholders vote “FOR” the adoption of the merger agreement and approval of the merger. Our board of directors also recommends that Osteotech’s stockholders vote “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement and approval of the merger.

Certain Projections

     We do not publicly disclose forecasts of future financial performance, earnings or other results and are especially wary of making projections for extended periods due to the unpredictability of the underlying assumptions and estimates. However, we prepared and provided to Deutsche Bank Securities Inc. the following projected financial information in connection with the preparation of its fairness opinion and related financial analysis.

		March 2010 Strategic Plan												July 2010 Strategic Plan
($ in millions)		2010E				2011E				2012E				2010E				2011E				2012E
Revenue		$	102.5			$	127.3			$	155.3			$	97.6			$	127.3			$	155.3
Costs of sales			50.9				59.8				68.7				47.9				59.8				68.7
Gross Margin			51.6				67.5				86.6				49.7				67.5				86.6
% Margin			50.3	%			53.0	%			55.8	%			50.9	%			53.0	%			55.8	%
Total operating expenses			49.7				61.8				73.2				46.5				61.8				73.2
% of Revenue			48.5	%			48.5	%			47.1	%			47.6	%			48.5	%			47.1	%
EBIT (1)			1.9				5.7				13.4				3.2				5.7				13.4
% Margin			1.9	%			4.5	%			8.6	%			3.3	%			4.5	%			8.6	%
Plus: Depreciation and amortization and stock-based compensation			7.3				7.7				8.1				7.2				7.7				8.1
EBITDA (2)			9.2				13.4				21.5				10.4				13.4				21.5
% Margin			9.0	%			10.5	%			13.8	%			10.7	%			10.5	%			13.8	%
Less: Income tax benefit (expense)			(0.2	)			(0.2	)			(0.2	)			(0.2	)			(0.2	)			(0.2	)
Tax Rate			0.0	%			0.0	%			0.0	%			0.0	%			0.0	%			0.0	%
Plus: (increase) / decrease in operating working capital			(1.2	)			(1.3	)			(6.0	)			(1.2	)			(1.3	)			(6.0	)
Less: Capital expenditures & other investments			(2.8	)			(4.4	)			(5.9	)			(2.6	)			(4.4	)			(5.9	)
Free Cash Flow			5.0				7.5				9.4				6.4				7.5				9.4

		July 2010 Strategic Plan
		Legacy Business												Next Generation Business												Whole Company
($ in millions)		2010E				2011E				2012E				2010E				2011E				2012E				2010E				2011E				2012E
Revenue		$	85.1			$	90.2			$	92.9			$	12.5			$	37.1			$	62.4			$	97.6			$	127.3			$	155.3
Cost of sales			43.3				47.3				48.1				4.6				12.5				20.6				47.9				59.8				68.7
Gross Margin			41.8				42.9				44.8				7.9				24.6				41.8				49.7				67.5				86.6
% Margin			49.1	%			47.6	%			48.2	%			63.2	%			66.3	%			67.0	%			50.9	%			53.0	%			55.8	%
Total operating expenses			36.7				43.0				45.6				9.8				18.8				27.6				46.5				61.8				73.2
% of Revenue			43.1	%			47.7	%			49.1	%			78.4	%			50.7	%			44.2	%			47.6	%			48.5	%			47.1	%
EBIT (1)			5.1				(0.1	)			(0.8	)			(1.9	)			5.8				14.2				3.2				5.7				13.4
% Margin			6.0	%			(0.1	%)			(0.9	%)			(15.2	%)			15.6	%			22.8	%			3.3	%			4.5	%			8.6	%
Plus: Depreciation and amortization and stock-based compensation			6.7				6.6				6.5				0.5				1.1				1.6				7.2				7.7				8.1
EBITDA (2)			11.8				6.5				5.7				(1.4	)			6.9				15.8				10.4				13.4				21.5
% Margin			13.9	%			7.2	%			6.1	%			(11.2	%)			18.6	%			25.3	%			10.7	%			10.5	%			13.8	%
Less: Income tax benefit (expense)			(0.2	)			0.6				0.8				—				(0.8	)			(1.0	)			(0.2	)			(0.2	)			(0.2	)
Tax Rate			0.0	%			0.0	%			0.0	%			0.0	%			0.0	%			0.0	%			0.0	%			0.0	%			0.0	%
Plus: (increase) / decrease in operating working capital			1.4				4.4				0.2				(2.6	)			(5.7	)			(6.2	)			(1.2	)			(1.3	)			(6.0	)
Less: Capital expenditures & other investments			(1.9	)			(2.2	)			(1.8	)			(0.7	)			(2.2	)			(4.1	)			(2.6	)			(4.4	)			(5.9	)
Free Cash Flow			11.1				9.3				4.9				(4.7	)			(1.8	)			4.5				6.4				7.5				9.4

     The projections set forth above were prepared for internal use and not prepared with a view to public disclosure and are being included in this proxy statement only because the projections were provided to Deutsche Bank Securities Inc. and, with the permission of Osteotech’s board of directors, were relied upon by Deutsche Bank Securities Inc. in performing its financial analysis for the Osteotech board of directors. The projections were not prepared with a view to compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The projections do not purport to present operations in accordance with U.S. generally accepted accounting principles, and our registered public accounting firm has not examined, compiled or otherwise applied procedures to the projections and accordingly assumes no responsibility for them. The projections have been prepared by, and are solely the responsibility of, our management. The inclusion of the projections in this proxy statement should not be regarded as an indication that these projections will be predictive of actual future results, and the forecasts should not be relied upon as such. Neither we nor any other person makes any representation to any of our security holders regarding our ultimate performance compared to the information contained in the projections set forth above. Although presented with numerical specificity, the projections are not fact and reflect numerous assumptions and estimates as to future events made by our management that our management believed

were reasonable at the time the projections were prepared and other factors such as industry performance and general business, economic, regulatory, market and financial conditions, as well as factors specific to our business, all of which are difficult to predict and many of which are beyond the control of our management. In addition, the projections do not take into account any circumstances or events occurring after the date that they were prepared and, accordingly, do not give effect to the merger or any changes to our operations or strategy that may be implemented after the consummation of the merger. Further, the projections do not take into account the effect of any failure to occur of the merger and should not be viewed as accurate or continuing in that context. Accordingly, there can be no assurance that the projections will be realized, and actual results may be materially greater or less than those reflected in the projections. We do not intend to update or otherwise revise the projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the projections are shown to be in error. The projections are forward-looking statements. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

Opinion of Deutsche Bank Securities Inc.

     Pursuant to an engagement letter dated June 30, 2009, Deutsche Bank acted as financial advisor to the board of directors of Osteotech in connection with the merger. At the August 16, 2010 meeting of the board of directors at which all members of the board of directors were present, Deutsche Bank delivered to the board of directors its oral opinion, subsequently confirmed in writing, to the effect that, as of the date of such opinion, based upon and subject to the assumptions made, matters considered and limitations, qualifications and conditions set forth in the opinion, the merger consideration to be paid to holders of the common stock in the merger was fair, from a financial point of view, to such holders.

     The full text of Deutsche Bank’s written opinion, dated August 16, 2010, which we refer to as the Deutsche Bank opinion, which sets forth, among other things, the assumptions made, matters considered and limitations, qualifications and conditions of the review undertaken by Deutsche Bank in connection with the opinion, is attached as Annex B to this proxy statement and is incorporated herein by reference in its entirety. The Deutsche Bank opinion has been approved and authorized for issuance by a fairness opinion review committee and is addressed to, and for the use and benefit of, the board of directors of Osteotech. The Deutsche Bank opinion is not a recommendation to the holders of Osteotech common stock to adopt the merger agreement and approve the merger. The Deutsche Bank opinion is limited to the fairness, from a financial point of view, of the merger consideration to the holders of Osteotech common stock. Deutsche Bank was not asked to, and the Deutsche Bank opinion did not, address the fairness of the merger, or any consideration received in connection therewith, to the holders of any other class of securities, creditors or other constituencies of Osteotech, nor did it address the fairness of the contemplated benefits of the merger. Deutsche Bank expressed no opinion as to the merits of the underlying decision by Osteotech to engage in the merger or the relative merits of the merger as compared to alternative business strategies, nor did it express any opinion as to how any holders of Osteotech common stock should vote with respect to the merger. Deutsche Bank did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of Osteotech’s officers, directors, or employees, or any class of such persons, in connection with the merger relative to the merger consideration to be received by the holders of the common stock. The holders of Osteotech common stock are urged to read the Deutsche Bank opinion in its entirety. The summary of the Deutsche Bank opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of the Deutsche Bank opinion set forth as Annex B.

     In connection with Deutsche Bank’s role as financial advisor to Osteotech, and in arriving at its opinion, Deutsche Bank has, among other things, reviewed certain publicly available financial and other information concerning Osteotech and certain internal analyses, financial forecasts and other information concerning Osteotech prepared by the management of Osteotech. Deutsche Bank also held discussions with senior officers and advisors of Osteotech regarding the businesses and prospects of Osteotech. In addition, Deutsche Bank has:

	•		reviewed the reported prices and trading activity for the common stock of Osteotech;
	•		to the extent publicly available, compared certain financial and stock market information for Osteotech with similar information for certain other companies Deutsche Bank considered relevant whose securities are publicly traded;

	•		to the extent publicly available, reviewed the financial terms of certain recent business combinations Deutsche Bank deemed relevant;
	•		reviewed the final execution copy, dated August 16, 2010 of the merger agreement; and
	•		performed such other studies and analyses and considered such other factors as Deutsche Bank deemed appropriate.

     In preparing its opinion, Deutsche Bank did not assume responsibility for the independent verification of, and did not independently verify, any information, whether publicly available or furnished to it, concerning Osteotech, including, without limitation, any financial information (including forecasts) considered in connection with the rendering of its opinion. Accordingly, for purposes of its opinion, with the board of directors’ permission, Deutsche Bank assumed and relied upon the accuracy and completeness of all such information. Deutsche Bank did not conduct a physical inspection of any of the properties or assets, and did not prepare or obtain any independent evaluation or appraisal of any of the assets or liabilities (including any contingent, derivative or off-balance sheet assets and liabilities), of Osteotech or Medtronic or any of their respective subsidiaries, nor did Deutsche Bank evaluate the solvency or fair value of Osteotech under any state or federal law relating to bankruptcy, insolvency or similar matters. With respect to Osteotech forecasts, Deutsche Bank assumed, with the board of directors’ permission, that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Osteotech as to the matters covered thereby. In rendering its opinion, Deutsche Bank expressed no view as to the reasonableness of such Osteotech forecasts or the assumptions on which they are based. The Deutsche Bank opinion was necessarily based upon the economic, market and other conditions as in effect on, and the information made available to Deutsche Bank as of, the date of such opinion. Deutsche Bank expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting the Deutsche Bank opinion of which it becomes aware after the date of the opinion.

     For purposes of rendering its opinion, Deutsche Bank, with the board of directors’ permission, has assumed, that, in all respects material to its analysis:

	•		the representations and warranties of Osteotech and Medtronic in the merger agreement are true and correct;
	•		that the merger would be consummated in accordance with the terms described in the merger agreement, without any amendments or modifications thereto;
	•		that based on Deutsche Bank’s discussions with the management of Osteotech, actual Third Party Expenses will not materially exceed the Third Party Expense Cap as defined in the merger agreement; and
	•		that all material governmental, regulatory or other approvals and consents required in connection with the consummation of the merger will be obtained and that in connection with obtaining any approvals and consents that no material restrictions will be imposed.

     Deutsche Bank is not a legal, regulatory, tax or accounting expert and Deutsche Bank relied on the assessments made by Osteotech and its advisors with respect to these issues.

     Deutsche Bank’s Financial Analysis

     Set forth below is a brief summary of certain financial analyses performed by Deutsche Bank in connection with the Deutsche Bank opinion and reviewed with the board of directors of Osteotech at its meeting on August 16, 2010.

     The order of the analyses described below does not represent relative importance or weight given to those analyses by Deutsche Bank or the board of directors of Osteotech. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Deutsche Bank’s financial analyses. The tables below must be read together with the full text of each summary and are alone not a complete description of Deutsche Bank’s financial analyses.

      Analysis of Selected Publicly Traded Companies — whole company comparison analysis . Deutsche Bank compared certain financial information and commonly used valuation measurements for Osteotech to corresponding information and measurements of the following companies, which we refer to as the selected companies:

      Med tech — implants; orthopedic / spine :

•

Orthovita, Inc. and RTI Biologics, Inc.

      Med tech — diversified surgical products :

•

CONMED Corporation, AngioDynamics, Inc., Kensey Nash Corporation, CryoLife, Inc., Synovis Life Technologies, Inc., LeMaitre Vascular, Inc.

     To calculate the trading multiples for the selected companies, Deutsche Bank used publicly available information concerning historical and projected financial performance, including published historical financial information and forecasted estimates based on Wall Street research. Using such financial information, Deutsche Bank reviewed for each of these companies, among other things:

	•		the operating performance;
	•		the ratio of common equity market capitalization plus total debt and minority interests less cash (“Enterprise Value”) to estimated 2010 Revenue (“2010E Revenue”);
	•		the ratio of Enterprise Value to estimated 2011 Revenue (“2011E Revenue”);
	•		the ratio of Enterprise Value to estimated 2010 EBITDA (“2010E EBITDA”); and
	•		the ratio of Enterprise Value to estimated 2011 EBITDA (“2011E EBITDA”).

     For both Osteotech and the selected companies, Deutsche Bank calculated EBITDA as earnings before interest, taxes, depreciation, and amortization, and before stock based compensation expense.

     This analysis indicated the following high, low, and median ratios as defined above for each group of the selected companies:

Selected Companies Valuation Multiples

Ratio

High

Low

Median

Med tech — implants; orthopedic / spine:

Enterprise Value/2010E Revenue

1.5x

0.8x

1.1x

Enterprise Value/2011E Revenue

1.3x

0.7x

1.0x

Enterprise Value/2010E EBITDA

19.9x

6.9x

13.4x

Enterprise Value/2011E EBITDA

11.4x

4.7x

8.0x

Med tech— diversified surgical products:

Enterprise Value/2010E Revenue

2.2x

1.0x

1.4x

Enterprise Value/2011E Revenue

2.2x

0.9x

1.3x

Enterprise Value/2010E EBITDA

10.0x

4.5x

7.4x

Enterprise Value/2011E EBITDA

7.8x

4.3x

6.6x

     Using Osteotech’s management forecast, and based on the foregoing:

•

Deutsche Bank determined an estimated Enterprise Value to 2010E Revenue reference range of 1.0x to 1.5x and applied such range to Osteotech’s 2010E Revenue, resulting in a range of implied common equity market prices per share, which we refer to as Price Per Share, for Osteotech from $5.08 to $7.57;

	•		Deutsche Bank determined an estimated Enterprise Value to 2011E Revenue reference range of 0.9x to 1.3x and applied such range to Osteotech’s 2011E Revenue, resulting in a range of implied Price Per Share for Osteotech from $5.95 to $8.53;
	•		Deutsche Bank determined an estimated Enterprise Value to 2010E EBITDA reference range of 8.0x to 12.0x and applied such range to Osteotech’s 2010E EBITDA, resulting in a range of implied Price Per Share for Osteotech from $4.34 to $6.49; and
	•		Deutsche Bank determined an estimated Enterprise Value to 2011E EBITDA reference range of 7.0x to 10.0x and applied such range to Osteotech’s 2011E EBITDA, resulting in a range of implied Price Per Share for Osteotech from $4.88 to $6.94.

None of the companies utilized as a comparison are identical to Osteotech. Accordingly, Deutsche Bank believes the analysis of publicly traded comparable companies is not simply mathematical. Rather, it involves complex considerations and qualitative judgments, reflected in the Deutsche Bank opinion, concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of such selected companies.

      Analysis of Selected Publicly Traded Companies — sum of the parts analysis . Deutsche Bank compared certain financial information and commonly used valuation measurements for the two operating segments of Osteotech, as defined by management, which are the Next Generation business consisting of Osteotech’s new and future product lines, including without limitation, MagniFuse™ Bone Graft, Plexur M ^® Innovative Grafting and FacetLinx™ Fusion Technology and the Legacy business, consisting of Osteotech’s legacy product lines, including Grafton DBM, Xpanse ^® Bone Inserts, traditional tissues and spinal allografts, to corresponding information and measurements of the following companies, which we refer to as the selected companies:

      Med tech — implants; orthopedic / spine :

•

Orthovita, Inc. and RTI Biologics, Inc.

      Med tech — diversified surgical products :

•

CONMED Corporation, AngioDynamics, Inc., Kensey Nash Corporation, CryoLife, Inc., Synovis Life Technologies, Inc., LeMaitre Vascular, Inc.

     To calculate the trading multiples for the selected companies, Deutsche Bank used publicly available information concerning historical and projected financial performance, including published historical financial information and forecasted estimates based on Wall Street research. Using such financial information, Deutsche Bank reviewed for each of these companies, among other things:

	•		the operating performance;
	•		the ratio of Enterprise Value to 2010E Revenue;
	•		the ratio of Enterprise Value to 2011E Revenue; and
	•		the ratio of Enterprise Value to 2011E EBITDA.

     For both Osteotech and the selected companies, Deutsche Bank calculated EBITDA as earnings before interest, taxes, depreciation, and amortization, and before stock based compensation expense.

     This analysis indicated the following high, low, and median ratios as defined above for each group of the selected companies:

Selected Companies Valuation Multiples

Ratio

High

Low

Median

Med tech — implants; orthopedic / spine:

Enterprise Value/2010E Revenue

1.5x

0.8x

1.1x

Enterprise Value/2011E Revenue

1.3x

0.7x

1.0x

Enterprise Value/2011E EBITDA

11.4x

4.7x

8.0x

Med tech— diversified surgical products:

Enterprise Value/2010E Revenue

2.2x

1.0x

1.4x

Enterprise Value/2011E Revenue

2.2x

0.9x

1.3x

Enterprise Value/2011E EBITDA

7.8x

4.3x

6.6x

     Using Osteotech’s management forecast for each of the Legacy business and the Next Generation business segments, respectively, and based on the foregoing Deutsche Bank performed the following analysis:

     For Osteotech’s Legacy business, Deutsche Bank determined an estimated Enterprise Value to 2010E Revenue reference range of 0.5x to 0.7x and determined an estimated Enterprise Value to 2011E EBITDA reference range of 6.0x to 9.0x and applied such ranges to Osteotech’s Legacy business 2010E Revenue and Legacy business 2011E EBITDA, resulting in a range of implied total aggregate values for the Legacy business (“Legacy Business Enterprise Value”). For Osteotech’s Next Generation business, Deutsche Bank determined an estimated Enterprise Value to 2011E Revenue reference range of 1.5x to 2.5x and determined an estimated Enterprise Value to 2011E EBITDA reference range of 9.0x to 13.0x and applied such ranges to Osteotech’s Next Generation business 2011E Revenue and Next Generation business 2011E EBITDA, resulting in a range of implied total aggregate values for the Next Generation business (“Next Generation Business Enterprise Value”). Deutsche Bank then added the sum of the Legacy Business Enterprise Value as implied above with the Next Generation Business Enterprise value as implied above, implying a total Enterprise Value for Osteotech.

     Deutsche Bank observed that the Price Per Share for Osteotech implied by this analysis ranged from $5.21 to $7.75.

     None of the companies utilized as a comparison are identical to Osteotech or to Osteotech’s Legacy business or Osteotech’s Next Generation business. Accordingly, Deutsche Bank believes the analysis of publicly traded comparable companies is not simply mathematical. Rather, it involves complex considerations and qualitative judgments, reflected in the Deutsche Bank opinion, concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of such selected companies.

      Analysis of Selected Precedent Transactions . Deutsche Bank reviewed the financial terms, to the extent publicly available, of six selected completed business combination transactions since January 1, 2008 involving companies in the medical technology, medical devices, surgical instruments, biomaterials, implants, monitoring devices, and related services companies (the “Selected Transactions”). Deutsche Bank calculated various financial multiples based on certain publicly available information for each of the Selected Transactions. The transactions reviewed were as follows:

Month and Year Announced		Target		Acquiror
May 2010		Biosphere Medical, Inc.		Merit Medical Systems, Inc.
May 2010		HealthTronics, Inc.		Endo Pharmaceuticals Holdings Inc.
February 2010		Home Diagnostics, Inc.		Nipro Corporation
September 2009		Aspect Medical Systems, Inc.		Covidien Public Limited Company
February 2008		Possis Medical, Inc.		MEDRAD, Inc. / Bayer HealthCare
January 2008		Lifecore Biomedical, Inc.		Warburg Pincus LLC

In its analysis, Deutsche Bank derived and compared multiples for the Selected Transactions, including the ratio of Enterprise Value to next twelve months EBITDA (“TEV to NTM EBITDA”).

     For both Osteotech and the Selected Transactions, Deutsche Bank calculated EBITDA as earnings before interest, taxes, depreciation, and amortization, and before stock based compensation expense.

     This analysis indicated the following:

Selected Transactions Valuation Multiples

Ratio

High

Low

Mean

Median

TEV to NTM EBITDA

23.5x

7.6x

13.6x

10.7x

     Using Osteotech’s management forecast, and based on the foregoing, Deutsche Bank determined an estimated TEV to NTM EBITDA reference range of 9.0x to 14.0x, resulting in a range of implied Price Per Share for Osteotech from $5.98 to $9.22.

     Because the reasons for, and circumstances surrounding, including without limitation differing markets and other conditions, each of the precedent transactions analyzed were so diverse, and due to the inherent differences between the operations and financial conditions of Osteotech and the companies involved in the selected transactions, Deutsche Bank believes that a comparable transaction analysis is not simply mathematical. Rather, it involves complex considerations and qualitative judgments, reflected in the Deutsche Bank opinion, concerning differences between the characteristics of these Selected Transactions and the merger that could affect the value of the subject companies and businesses and Osteotech.

      Discounted Cash Flow — sum of the parts analysis. Deutsche Bank performed a discounted cash flow analysis for Osteotech’s Legacy business and Next Generation business segments, respectively. Then Deutsche Bank calculated the range of implied Enterprise Value for Osteotech as the sum of the estimated total aggregate values for the Legacy business and the Next Generation business, respectively. The discounted cash flow analysis of each business segment was calculated as the sum of the net present value of:

	•		the estimated future cash flow that Osteotech’s Legacy business and Next Generation business will generate, respectively, for the last half of 2010 and the years from 2011 through 2012; and
	•		the value of Osteotech’s Legacy business and Next Generation business at the end of such period, respectively, or the terminal value.

     The estimated future cash flow for each of Osteotech’s business segments was based on Osteotech’s management forecast for the last half of 2010 and years 2011 through 2012 as prepared by Osteotech’s management. For its calculations, Deutsche Bank used discount rates ranging from 14.0% to 16.0% for Osteotech’s Legacy business and 17.0% to 19.0% for Osteotech’s Next Generation business, respectively. The discount rates applicable to Osteotech’s Legacy business and Next Generation business, respectively, were based on Deutsche Bank’s judgment of the estimated weighted average cost of Osteotech’s capital for each of these business segments. The terminal value of Osteotech’s Legacy business was calculated using perpetuity growth rates ranging from (1.0%) to 1.0%. The terminal value of Osteotech’s Next Generation business was calculated by applying a ratio of Enterprise Value to last twelve months revenue (“TEV to LTM Revenue”) in the range of 2.0x to 3.0x.

     Deutsche Bank observed that the Price Per Share for Osteotech implied by this analysis ranged from $5.53 to $8.07.

      Fifty-Two Week Trading Range . Deutsche Bank reviewed the historical trading price for the common stock of Osteotech during the 12-month period ended August 13, 2010 and observed that the range of closing share prices for Osteotech’s common stock during this period was $2.55 to $4.99.

     The foregoing summary describes all analyses and factors that Deutsche Bank deemed material in its presentation to the board of directors of Osteotech, but is not a comprehensive description of all analyses performed and factors considered by Deutsche Bank in connection with preparing its opinion. The preparation of a fairness opinion is a complex process involving the application of subjective business judgment in determining the most appropriate and relevant methods of financial analysis and the application of those methods to the particular

circumstances and, therefore, is not readily susceptible to summary description. Deutsche Bank believes that its analyses must be considered as a whole and that considering any portion of such analyses and of the factors considered without considering all analyses and factors could create a misleading view of the process underlying the opinion. In arriving at its fairness determination, Deutsche Bank did not assign specific weights to any particular analyses.

     In conducting its analyses and arriving at its opinion, Deutsche Bank utilized a variety of generally accepted valuation methods. The analyses were prepared solely for the purpose of enabling Deutsche Bank to provide its opinion to the board of directors of Osteotech as to the fairness of the merger consideration to the holders of common stock of Osteotech and do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold, which are inherently subject to uncertainty. In connection with its analyses, Deutsche Bank made, and was provided by Osteotech management with, numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond Osteotech’s control. Analyses based on estimates or forecasts of future results are not necessarily indicative of actual past or future values or results, which may be significantly more or less favorable than suggested by such analyses. Because such analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of Osteotech or its advisors, neither Osteotech nor Deutsche Bank nor any other person assumes responsibility if future results or actual values are materially different from these forecasts or assumptions.

     The terms of the merger were determined through negotiations between Osteotech and Medtronic and were approved by the board of directors of Osteotech. Although Deutsche Bank provided advice to the board of directors of Osteotech during the course of these negotiations, the decision to enter into the merger was solely that of the board of directors of Osteotech. As described above, the opinion and presentation of Deutsche Bank to the board of directors of Osteotech were only one of a number of factors taken into consideration by the board of directors in making its determination to approve the merger. The Deutsche Bank opinion was provided to the board of directors of Osteotech to assist it in connection with its consideration of the merger and does not constitute a recommendation to any holder of common stock of Osteotech as to how to vote with respect to the merger.

      Additional Information

     The board of directors of Osteotech selected Deutsche Bank as financial advisor in connection with the merger based on Deutsche Bank’s qualifications, expertise, reputation and experience in mergers and acquisitions. Osteotech has retained Deutsche Bank pursuant to a letter agreement dated June 30, 2009 (the “Engagement Letter”). As compensation for Deutsche Bank’s services in connection with the merger, Osteotech has agreed to pay a transaction fee of approximately $1.5 million contingent on the consummation of the merger. In addition, Osteotech has agreed to pay Deutsche Bank an opinion fee of $0.8 million upon delivery of its fairness opinion, which shall reduce the transaction fee paid in connection with the consummation of the merger. Regardless of whether the merger is consummated, Osteotech has agreed to reimburse Deutsche Bank for reasonable fees, expenses and disbursements of Deutsche Bank’s counsel and all of Deutsche Bank’s reasonable travel and other out-of-pocket expenses incurred in connection with the merger or otherwise arising out of the engagement of Deutsche Bank under the Engagement Letter. Osteotech has also agreed to indemnify Deutsche Bank and certain related persons to the full extent lawful against certain liabilities arising out of its engagement or the merger.

     Deutsche Bank is an internationally recognized investment banking firm experienced in providing advice in connection with mergers and acquisitions and related transactions. Deutsche Bank is an affiliate of Deutsche Bank AG, which, together with its affiliates, we refer to as the DB Group. In the past two years, an affiliate of the DB Group provided financial services to Medtronic or its affiliates for which it received compensation in the amount of approximately $13 million as of June 30, 2010, for capital raising, investment management, interest rate and other hedging transactions and foreign exchange trading. DB Group may also provide investment and commercial banking services to Medtronic and Osteotech and their respective affiliates in the future, for which DB Group would expect to receive compensation. In the ordinary course of its business, members of the DB Group may actively trade in the securities and other instruments and obligations of Osteotech for their own accounts and for the accounts of their customers. Accordingly, the DB Group may at any time hold a long or short position in these securities, instruments and obligations.

Interests of our Executive Officers and Directors in the Merger

     In considering the recommendation of our board of directors in favor of the adoption of the merger agreement and approval of the merger, you should be aware that our executive officers and members of our board of directors have interests in the merger that are different from, or in addition to, yours.

     All such additional interests are described below, to the extent material, and except as described below, such persons have, to our knowledge, no material interest in the merger apart from those of stockholders generally. Our board of directors was aware of, and considered the interests of, our executive officers and directors in approving the adoption of the merger agreement and the merger.

      Employment and Change in Control Agreements with Executive Officers

     We have entered into employment agreements with each of our executive officers. The employment agreements with the executive officers have two year terms and are subject to automatic renewal for additional two year terms, unless terminated at least three months prior to the expiration of the current two year term. The employment agreements provide that, if the executive officer is terminated without cause, he will be entitled to certain severance payments. Mr. Owusu-Akyaw would be entitled to severance payments equal to 24 months of his base salary, payable in monthly installments, and continuation of medical and dental benefits and life insurance for the same 24 month period to the extent such benefits were being provided to him at the time of termination. Messrs. Burroughs, Wynalek and Honneffer each would be entitled to severance payments equal to 12 months of his base salary, payable in monthly installments, and continuation of medical and dental benefits and life insurance for the same 12 month period to the extent such benefits were being provided to him at the time of termination. In addition, Mr. Owusu-Akyaw would be eligible for outplacement services for up to 24 months, as necessary, and Mr. Burroughs would be eligible for outplacement services for up to 12 months, as necessary.

     We have also entered into change in control agreements with each of our executive officers. Under the change in control agreements, a change in control is defined as:

	•		the acquisition by any person of a majority of the outstanding voting securities of Osteotech, except if such acquisition is effected by Osteotech itself, by an employee benefit plan of Osteotech or pursuant to an offering by Osteotech of its voting securities;
	•		a merger or consolidation of Osteotech with another company such that neither Osteotech nor any of its subsidiaries will be the surviving entity;
	•		a merger or consolidation of Osteotech following which Osteotech or a previous subsidiary of Osteotech will be the surviving entity and a majority of the voting securities of Osteotech will be owned by a person or persons who were not beneficial owners of a majority of Osteotech’s voting securities prior to such merger or consolidation;
	•		a liquidation of Osteotech;
	•		a sale or disposition by Osteotech of at least 80% of its assets; or
	•		a change in the board such that a majority of the board is made up of persons who were neither nominated nor appointed by incumbent Directors.

     Under the change in control agreements, for one year after the occurrence of a change in control, each executive officer will remain in Osteotech’s employ in the same position he held before the change in control and will be entitled to a base salary and benefits no less favorable than those in effect for such executive immediately preceding the change in control. In addition, upon a change in control, all unvested equity awards held by each executive will vest and become exercisable immediately, notwithstanding anything to the contrary contained in the equity award agreements or any plan covering such equity awards.

     The change in control agreements also provide that if, after a change in control, an executive officer’s employment is terminated for any reason, the executive will be entitled to receive all then accrued pay, benefits,

executive compensation (as defined in these agreements) and fringe benefits, including pro rata bonus and incentive plan earnings through the date of his termination plus the amount of any compensation he previously deferred, in each case, to the extent theretofore unpaid. In addition, unless the executive’s employment was terminated by the executive without good reason (as defined below) on or prior to the 180th day after the change in control event or by Osteotech for just cause (as defined in the agreement) on or prior to the 180th day after the change in control event, the executive officer will receive (1) a payment equal to three times the sum of (a) his average annual base salary plus (b) his average annual cash bonuses, for the five taxable years or annualized portions thereof prior to the change in control event, plus interest, and (2) at Osteotech’s expense, medical, health and disability benefits comparable to those he received prior to the change in control for a period of three years following his termination. Furthermore, unless the executive’s employment was terminated (a) by the executive other than for good reason prior to the 180th day following a change in control event, (b) by the executive voluntarily for any reason after the 180th day following a change in control event or (c) by Osteotech for just cause, the executive will also be entitled to (1) the balance of all pay, benefits, compensation and fringe benefits including (but not limited to) pro rata salary, bonus and incentive plan earnings payable through the first anniversary of the change in control event, and (2) an office and reasonable secretarial and other services from Osteotech for one year from the date of his termination. If the executive officer’s employment is terminated by Osteotech for any reason other than just cause after a change in control, the benefits of the employment agreement and change in control agreement are additive in determining the payments due to the executive. For purposes of the change in control agreements, good reason includes:

	•		the assignment to the executive of duties which are not substantially of equal status, dignity and character as the duties performed immediately prior to the change in control, or a substantial reduction in the nature or status of his responsibilities from those in effect immediately prior to the change in control;
	•		the failure of Osteotech to provide full compensation as contemplated by the change in control agreement;
	•		the relocation of the executive’s office to a location more than 15 miles from the location of such office immediately prior to the change in control, or his being required to travel to a substantially greater extent than required immediately prior to the change in control in order to perform duties of substantially equal status, dignity and character to those performed prior to the change in control;
	•		the failure of a successor corporation to expressly assume and agree to perform Osteotech’s obligations under the change in control agreement, provided such successor has received at least 20 days prior written notice of such obligations; and
	•		the voluntary termination by the executive for any reason after the 180th day following the change in control.

     If the effective time of the merger had been September 3, 2010 and the employment of the executive officers had been immediately terminated by the executive officer for good reason or terminated by Osteotech without cause, the executive officers would have been entitled to receive, pursuant to the terms of the employment and change in control agreements, lump sum severance payments upon termination in the amounts set forth in the table below. The table also sets forth the value of the benefits continuation and outplacement services to be provided to the executive officers upon termination. In addition, the unvested Restricted Stock Units held by the executive officers would have immediately vested and the unexercisable Options held by the executive officers, had there been any, would have become immediately exercisable.

				Termination For				Termination Without
				Good Reason After				Cause After Change
				Change in Control				in Control
Name		Description		($)				($)
Sam Owusu-Akyaw		Severance Amount			1,993,200				2,821,200
		Value of Benefits Continuation			84,400				96,400
		Value of Outplacement Services			—				50,000
Mark H. Burroughs		Severance Amount			1,175,500				1,432,600
		Value of Benefits Continuation			72,500				76,200
		Value of Outplacement Services			—				25,000
Robert W. Honneffer		Severance Amount			954,900				1,167,000
		Value of Benefits Continuation			68,900				72,000
Robert M. Wynalek		Severance Amount			1,247,900				1,521,900
		Value of Benefits Continuation			73,400				77,400

      Common Stock held by our Executive Officers and Directors

     As of September 3, 2010, our executive officers and directors beneficially owned approximately 2.3% of our outstanding common stock (excluding shares that may be acquired through the exercise of Options or vesting of Restricted Stock Unit awards). The following table summarizes the shares of common stock beneficially owned as of September 3, 2010 by our executive officers and directors (excluding shares that may be acquired through the exercise of Options or vesting of Restricted Stock Unit awards), and the consideration that each of them will receive pursuant to the merger agreement in connection with the ownership of their shares.

						Resulting
						Consideration to be
		Shares of Common				Paid at Completion of
		Stock Owned (#)				Merger ($) (1)
Executive Officers:
Sam Owusu-Akyaw*			154,766				1,005,979
Mark H. Burroughs			52,659				342,284
Robert W. Honneffer			56,281				365,827
Robert M. Wynalek			43,949				285,669
Directors:
Kenneth P. Fallon, III			46,500				302,250
Stephen S. Galliker			20,000				130,000
Dr. Cato T. Laurencin			10,000				65,000
Robert J. Palmisano			20,000				130,000
James M. Shannon			15,000				97,500

      Options

     As of September 3, 2010, our executive officers and directors as a group held 571,750 Options with an exercise price less than the merger consideration, having a weighted average exercise price of $4.86 per share. In accordance with the merger agreement, at the effective time of the merger, each of these Options, together with all other outstanding Options, will be accelerated and canceled in exchange for the right to receive an amount equal to the total number of shares of common stock subject to the Options multiplied by the excess, if any, of the merger consideration over the exercise price of the Options, less applicable withholding taxes, if any. As a result, directors or executive officers holding such “in the money” Options may have a financial interest that is different from, or in addition to, the interest of holders of our common stock.

     The following table summarizes the Options held as of September 3, 2010 by our executive officers and directors, and the consideration that each of them will receive pursuant to the merger agreement in connection with the ownership of their Options.

		Number of Shares of				Weighted Average				Resulting
		Common Stock				Exercise Price of				Consideration to be
		Underlying				Options				Paid at Completion
		Options (#)				($) (1)				of Merger ($) (1)
Executive Officers:
Sam Owusu-Akyaw*			215,000				5.42				231,400
Mark H. Burroughs			73,250				5.03				107,915
Robert W. Honneffer			38,250				4.23				86,665
Robert M. Wynalek			74,000				4.21				169,150
Directors:
Kenneth P. Fallon, III			126,250				4.59				240,988
Stephen S. Galliker			30,000				4.76				52,350
Dr. Cato T. Laurencin			—				—				—
Robert J. Palmisano			15,000				3.33				47,550
James M. Shannon			—				—				—

      Restricted Stock Units

     Certain of our executive officers hold unvested Restricted Stock Units. In accordance with the merger agreement, at the effective time of the merger, each of these Restricted Stock Units, together with all other outstanding Restricted Stock Units, will be accelerated and canceled in exchange for the right to receive an amount equal to the total number of shares of common stock represented by such Restricted Stock Unit, multiplied by the merger consideration, less applicable withholding taxes, if any. As a result, executive officers holding such Restricted Stock Units may have a financial interest that is different from, or in addition to, the interest of holders of our common stock.

     The following table summarizes the Restricted Stock Units held as of September 3, 2010 by executive officers and the consideration that each of them will receive pursuant to the merger agreement in connection with the ownership of their Restricted Stock Units. No Restricted Stock Units were held by our directors as of September 3, 2010.

						Resulting Consideration to be
		Restricted Stock				Paid at Completion
		Units (#)				of Merger ($) (1)
Executive Officers:
Sam Owusu-Akyaw*			42,368				275,392
Mark H. Burroughs			20,400				132,600
Robert W. Honneffer			20,625				134,063
Robert M. Wynalek			20,475				133,088

      Indemnification; Insurance

     Medtronic and Merger Sub have agreed that all rights to indemnification, exculpation and advancement of expenses existing in favor of our or our subsidiaries’ current or former directors, officers, and employees as provided in our and our subsidiaries’ certificate of incorporation and bylaws and in various agreements disclosed to Medtronic before the date of the merger agreement, as in effect on the date of the merger agreement with respect to matters occurring at or prior to the effective time of the merger, will survive and continue in full force and effect for a period of not less than the applicable statute of limitations.

     Prior to the effective time of the merger, we must obtain and pay for in full, in respect of acts or omissions occurring prior to or at the effective time of the merger (including such acts or omissions in connection with the merger agreement and the transactions contemplated by the merger agreement), policies of directors’ and officers’ liability insurance covering Osteotech and other persons currently covered by our existing directors’ and officers’ liability insurance policies, for a period of six years after the effective time of the merger. If the aggregate premiums for such policies exceeds $550,000, we are required to first consult with Medtronic and can obtain and pay for such policies only on terms reasonably acceptable to Medtronic. From and after the effective time of the merger, the surviving corporation cannot take any action to cancel such policies.

     See the section of this proxy statement entitled “The Merger Agreement—Indemnification; Insurance” beginning on page • .

Market Price and Dividend Data

     Our common stock is traded on the NASDAQ Global Market under the symbol “OSTE.” The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the NASDAQ Global Market.

		Fiscal Quarters
		First				Second				Third				Fourth
Fiscal year ending December 31, 2010 (through June 30, 2010)
High		$	4.39			$	4.82			$	—				—
Low		$	3.00			$	2.94			$	—				—
Fiscal year ended December 31, 2009
High		$	3.94			$	4.63			$	5.04			$	4.84
Low		$	1.74			$	3.01			$	3.87			$	2.55
Fiscal year ended December 31, 2008
High		$	8.00			$	6.36			$	5.99			$	4.49
Low		$	4.12			$	3.99			$	4.11			$	1.31

     We have never paid a cash dividend and do not anticipate the payment of cash dividends in the foreseeable future. We expect to retain future earnings to finance our growth. In addition, our credit facility restricts our ability to pay dividends. The declaration of dividends in the future will remain within the discretion of our board of directors, which will review our dividend policy from time to time.

     The following table sets forth the closing per share sales price of our common stock, as reported on the NASDAQ Global Market on August 16, 2010, the last full trading day before the public announcement of the merger, and on • , 2010, the latest practicable trading day prior to the printing of this proxy statement:

		Common Stock
Date		Closing Price
August 16, 2010			3.94
• , 2010			•

     Following the merger, there will be no further market for our common stock and our stock will be delisted from the NASDAQ Global Market and deregistered under the Securities Exchange Act of 1934, as amended.

     If the merger agreement is not adopted and the merger is not approved by our stockholders or if the merger is not completed for any other reason, our stockholders will not receive any payment for their shares in connection with the merger. Instead, we will remain an independent public company and our common stock will continue to be listed and traded on the NASDAQ Global Market, subject to compliance with continued listing requirements.

Regulatory Matters

     We and Medtronic have agreed to use our reasonable best efforts to make any required submissions under the HSR Act, and any applicable foreign antitrust laws which we or Medtronic determine should be made with respect to the merger, the merger agreement, and the other transactions contemplated by the merger and the merger agreement.

     Mergers and acquisitions that may have an impact in the United States are subject to review by the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission to determine whether they comply with applicable antitrust laws. Under the HSR Act, mergers and acquisitions that meet certain jurisdictional thresholds, such as the merger between us and Merger Sub, may not be completed until the expiration of a waiting period that follows the filing of notification forms by both parties to the transaction with the Department of Justice and the Federal Trade Commission. The initial waiting period is 30 days after both parties have filed notification forms, but this period may be shortened if the reviewing agency grants “early termination” of the waiting period, or

it may be lengthened if the reviewing agency determines that an in-depth investigation is required and issues a formal request for additional information and documentary material (referred to as a “Second Request”). On • , 2010, we and Medtronic filed notification reports with the Department of Justice and Federal Trade Commission under the HSR Act. The waiting period under the HSR Act would then expire • assuming no further action by the Department of Justice or the Federal Trade Commission.

     In addition, we and Medtronic are required to make a filing with the governmental authorities in Austria and must observe at least a minimum four-week waiting period before we can proceed with the merger. The Austrian filing was made on • , 2010.

     It is possible that one or more of the government entities with which filings are made may seek various regulatory concessions as conditions for granting approval of the merger. There can be no assurance that we will obtain all of the regulatory approvals necessary to complete the merger or that the granting of these approvals will not involve the imposition of conditions on completion of the merger or require changes to the terms of the merger. These conditions or changes could result in conditions to completion of the merger not being satisfied. See “The Merger Agreement — Covenants Relating to the Conduct of Our Business” and “The Merger Agreement — Conditions to Completion of the Merger.”

Appraisal Rights

     Under Delaware law, you have the right to appraisal of the fair value of your shares of Osteotech common stock by the Court of Chancery and to receive payment in cash for the fair value of your shares as determined by the court, together with interest, if any, in lieu of the consideration you would otherwise be entitled to pursuant to the merger agreement. These rights are known as appraisal rights. Osteotech stockholders electing to exercise appraisal rights must comply with the provisions of Section 262 of the Delaware General Corporation Law in order to perfect their rights. Osteotech will require strict compliance with the statutory procedures. A copy of Section 262 is attached to this proxy statement as Annex C.

     Although we believe the merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Court of Chancery, and you should be aware that the fair value of your shares as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to receive under the terms of the merger agreement. Moreover, the surviving corporation does not anticipate offering more than the value that you are entitled to receive under the terms of the merger agreement to any stockholder exercising appraisal rights and reserves the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the “fair value” of a share of our common stock is less than the merger consideration.

      The following discussion is a brief description of the procedures relating to the exercise of appraisal rights under Section 262, is not a complete statement of the law pertaining to appraisal rights under Section 262 and is qualified in its entirety by the full text of Section 262 which is attached to this proxy statement as Annex C. All references in Section 262 and in this summary to a “stockholder” are to the record holder of the shares of our common stock as to which appraisal rights are asserted unless otherwise indicated. A person having a beneficial interest in shares of our common stock held of record in the name of another person, such as a broker, fiduciary, depositary or other nominee, must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to perfect appraisal rights.

     Section 262 requires that stockholders be notified not less than 20 days before the special meeting to vote on the merger that appraisal rights will be available. A copy of Section 262 must be included with such notice. This proxy statement constitutes Osteotech’s notice to its stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 contained in Annex C since failure to timely and properly comply with the requirements of Section 262 will result in the loss of your appraisal rights under Delaware law. Merely voting against adoption of the merger agreement and against approval of the merger will not satisfy the notice requirements under Delaware law with respect to appraisal rights.

     If you elect to demand appraisal of your shares, you must satisfy each of the following conditions:

	•		You must deliver to Osteotech a written demand for appraisal of your shares before the vote with respect to the merger is taken. This written demand for appraisal must be in addition to and separate from any proxy or vote abstaining from or voting against adoption of the merger agreement and approval of the merger. Voting against or failing to vote for adoption of the merger agreement and approval of the merger by itself does not constitute a demand for appraisal within the meaning of Section 262.
	•		You must not vote in favor of, or consent in writing to, adoption of the merger agreement and approval of the merger. A vote in favor of the adoption of the merger agreement or in favor of the merger, by proxy or in person, will constitute a waiver of your appraisal rights in respect of the shares so voted and will nullify any previously filed written demands for appraisal.
	•		You must continue to hold your shares of Osteotech common stock through the effective date of the merger. Therefore, a stockholder who is the record holder of shares of Osteotech common stock on the date the written demand for appraisal is made but who thereafter transfers the shares prior to the effective date of the merger will lose any right to appraisal with respect to such shares.

     If you fail to comply with any of these conditions and the merger is completed, you will be entitled to receive the cash payment for your shares of Osteotech common stock as provided for in the merger agreement, but you will have no appraisal rights with respect to your shares of Osteotech common stock.

     All demands for appraisal should be addressed to the Assistant Secretary at Osteotech, Inc., 51 James Way, Eatontown, New Jersey 07724, and must be delivered to Osteotech before the vote on the merger is taken at the special meeting, and should be executed by, or on behalf of, the record holder of the shares of Osteotech common stock. The demand must reasonably inform Osteotech of the identity of the stockholder and the intention of the stockholder to demand appraisal of his, her or its shares.

     To be effective, a demand for appraisal by a holder of Osteotech common stock must be made by, or in the name of, such stockholder, fully and correctly, as the stockholder’s name appears on his, her or its stock certificate(s) and cannot be made by the beneficial owner if he, she or it does not also hold the shares of record. The beneficial holder must, in such cases, have the record holder submit the required demand in respect of those shares.

     If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made in that capacity; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he, she or it is acting as agent for the record owner. A record owner, such as a broker, who holds shares as a nominee for others, may exercise his, her or its right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner.

     If you hold your shares of Osteotech common stock in a brokerage account or in other nominee form and you wish to exercise appraisal rights, you should consult with your broker or the other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

     Within 10 days after the effective time of the merger, the surviving corporation must give written notice that the merger has become effective to each Osteotech stockholder who has properly filed a written demand for appraisal and who did not vote in favor of the merger agreement and the merger. At any time within 60 days after the effective time of the merger, any stockholder who has demanded an appraisal but who has not commenced an appraisal proceeding or joined that proceeding as a named party, has the right to withdraw the demand and to accept the cash payment specified by the merger agreement for his, her or its shares of Osteotech common stock.

     Within 120 days after the effective time of the merger, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. In addition, a beneficial owner of shares as to which demand has been properly made and not effectively withdrawn, where such shares are held in a voting trust or by a nominee on behalf of such beneficial owner, may, in his, her or its own name, file such a petition. The surviving corporation has no obligation to file such a petition in the event there are dissenting stockholders. Accordingly, the failure of a stockholder to file such a petition within the period specified could nullify the stockholder’s previously written demand for appraisal. You will not receive notice specifying the deadline by which you must file such petition, and you must calculate the deadline by counting 120 days from the time of effectiveness of the merger. As described above, the surviving corporation will notify you of the effective time of the merger.

     Within 120 days after the effective time of the merger, any stockholder who has complied with the provisions of Section 262 to that point in time may receive from us, upon written request, a statement setting forth the aggregate number of shares not voted in favor of adoption of the merger agreement and with respect to which we have received demands for appraisal, and the aggregate number of holders of those shares. We must mail this statement to the stockholder within 10 days after receipt of the written request or within 10 days after expiration of the period for delivery of demands for appraisals under Section 262, whichever is later. In addition, a beneficial owner of shares as to which demand has been properly made and not effectively withdrawn, where such shares are held in a voting trust or by a nominee on behalf of such beneficial owner, may, in his, her or its own name, request such written statement from the company.

     If a stockholder files a petition for appraisal in a timely manner, service of a copy thereof shall be made upon the surviving corporation, and the surviving corporation will then be obligated, within 20 days after receiving a copy of the petition, to file with the Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom an agreement as to the value of their shares has not been reached.

     After notice to dissenting stockholders, the Court of Chancery is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Court of Chancery may require the stockholders who have demanded payment for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Court of Chancery may dismiss the proceedings as to that stockholder.

     After determination of the stockholders entitled to appraisal of their shares of Osteotech common stock, the Court of Chancery will conduct the appraisal hearing in accordance with the court’s rules. The court will appraise the shares at their “fair value,” exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid on the amount determined to be fair value. In determining fair value, the Court of Chancery is required to take into account all relevant factors. Unless the court in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment. You should be aware that the fair value of your shares as determined under Section 262 could be more, the same, or less than the value that you are entitled to receive under the terms of the merger agreement.

     Upon application by the surviving corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court of Chancery may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the verified list and who has submitted his, her or its certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that he, she or it is not entitled to appraisal rights. When the fair value is determined, the Court of Chancery will direct the payment of such value, with interest thereon accrued during the pendency of the proceeding, if the Court of Chancery so determines, to the stockholders entitled to receive the same, upon surrender by such holders of the certificates representing those shares.

     Costs of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Court of Chancery as the Court of Chancery deems equitable in the

circumstances. Upon the application of a stockholder, the Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal.

     Any stockholder who had demanded appraisal rights will not, after the effective time of the merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective time of the merger; however, if no petition for appraisal is filed within 120 days after the effective time of the merger, or if the stockholder delivers a written withdrawal of his, her or its demand for appraisal and an acceptance of the merger within 60 days after the effective time of the merger, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the cash payment for shares of his, her or its Osteotech common stock pursuant to the merger agreement. Any withdrawal of a demand for appraisal made more than 60 days after the effective time of the merger may only be made with the written approval of the surviving corporation and must, to be effective, be made within 120 days after the effective time of the merger. No appraisal proceeding in the Court of Chancery will be dismissed as to any stockholder without the approval of the Court of Chancery, and such approval may be subject to such conditions as the Court of Chancery deems just. This shall not, however, affect the right of a stockholder who has not commenced an appraisal proceeding as to such stockholder’s shares, or joined such an appraisal proceeding as a named party, to withdraw his, her or its demand for appraisal within 60 days after the effective date of the merger and to accept the merger consideration. If the stockholder fails to perfect, effectively withdraws or otherwise loses the appraisal right, the stockholder’s shares will be converted into the right to receive the merger consideration.

     Failure to comply with all of the procedures set forth in Section 262 will result in the loss of a stockholder’s statutory appraisal rights. In view of the complexity of Section 262, Osteotech stockholders who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors.

Accounting Treatment

     The merger will be accounted for as a “purchase transaction” for financial accounting purposes.

Material United States Federal Income Tax Consequences

     This section discusses the material United States Federal income tax consequences of the merger to U.S. holders and non-U.S. holders (each, as defined below) of our capital stock who will surrender their shares of our stock in the merger in exchange for cash. This discussion is included for general information purposes only and does not constitute, and is not, a tax opinion or tax advice to any particular holder of our stock. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury Regulations promulgated thereunder, judicial decisions, administrative rulings and other legal authorities, all in effect as of the date hereof and all of which are subject to change, possibly with retroactive effect. No ruling from the Internal Revenue Service, or the “ IRS, ” or opinion of counsel will be requested concerning the United States Federal income tax consequences of the merger. The tax consequences set forth in the following discussion are not binding on the IRS or the courts, and no assurance can be given that contrary positions will not be successfully asserted by the IRS or adopted by a court.

     The following discussion is not intended to constitute a complete description of all U.S. Federal income tax consequences relating to the merger, and does not address potential foreign, state, local and other tax consequences of the merger. In addition, the discussion does not address all of the United States Federal income tax consequences that may be relevant to a particular holder of our stock, including holders who, in light of their particular circumstances, may be subject to special rules, including, without limitation:

	•		financial institutions, mutual funds, tax-exempt organizations, insurance companies, dealers in securities, persons that mark-to-market their securities, or persons that hold our stock as part of a “straddle,” “hedge” or “synthetic security transaction” (including a “conversion” transaction);
	•		certain former citizens or residents of the United States, or U.S. persons that have a functional currency other than the U.S. dollar;

	•		holders that are pass-through entities or who hold our stock through partnerships or other pass-through entities;
	•		holders of Options to acquire our stock, Restricted Stock Units or any other form of equity-based compensation;
	•		holders who acquired our stock pursuant to the exercise of Options, pursuant to participation in an employee stock purchase plan or otherwise as compensation;
	•		holders who hold our stock as qualified small business stock;
	•		holders who exercise appraisal rights; or
	•		holders that are subject to the alternative minimum tax.

     The discussion below applies only to stockholders that hold our stock as a capital asset at the time of the completion of the merger. The discussion does not include any description of the tax laws of any state, local or foreign government that may be applicable to holders of our stock.

     If shares of our stock are held by a partnership, the U.S. Federal income tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Partnerships that hold shares of our stock and partners in such partnerships should consult their own tax advisors regarding the tax consequences to them of the merger.

     For purposes of this summary, a “ U.S. holder ” is a beneficial owner of shares of our stock, who is, for U.S. federal income tax purposes:

	•		a citizen or resident of the United States;
	•		a corporation (or other entity taxable as a corporation) created or organized in or under the laws of the United States, any state of the United States or the District of Columbia;
	•		an estate, the income of which is subject to U.S. Federal income tax regardless of its source; or
	•		a trust if either (1) a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust, or (2) the trust has a valid election in effect to be treated as a U.S. person for U.S. Federal income tax purposes.

     A “ non-U.S. holder ” is a beneficial owner of shares of our stock that is not a U.S. holder, subject to the limitations set forth above for holders to whom special rules apply.

      U.S. Holders

General

     The exchange of shares of our stock for cash in the merger will be a taxable transaction for United States Federal income tax purposes. Accordingly, a U.S. holder generally will recognize capital gain or capital loss equal to the difference between the amount of cash received in the merger and the U.S. holder’s adjusted tax basis in the shares surrendered.

     Gain or loss will be calculated separately for each block of shares (that is, shares acquired at the same cost in a single transaction) exchanged in the merger. If, at the time of the merger, a non-corporate U.S. holder’s holding period for the shares of our stock is more than twelve months, any gain recognized generally will be subject to tax at the rate applicable to long term capital gains. If a non-corporate U.S. holder’s holding period for the shares of our stock is twelve months or less at the time of the merger, any gain will be subject to United States Federal income tax at the same graduated rates as ordinary income. For corporations, capital gain is taxed at the same rates as ordinary income. The deductibility of capital losses is subject to limitations.

      Backup Withholding

     To prevent Federal backup income tax withholding with respect to cash received pursuant to the merger, each U.S. holder must either (1) provide a correct taxpayer identification number and certify under penalties of perjury that such U.S. holder is not subject to backup withholding of Federal income tax by completing the substitute Form W-9 or (2) establish a basis for exemption from backup withholding. U.S. holders who fail to provide their correct taxpayer identification numbers and the appropriate certifications or to establish an exemption will be subject to backup withholding on the cash received at a tax withholding rate of 28% and may be subject to penalties imposed by the IRS. If the amount withheld on a payment to a U.S. holder results in an overpayment of taxes, a refund generally may be obtained by the taxpayer from the IRS, provided that the required information is timely furnished to the IRS. Certain taxpayers, such as corporations and financial institutions, are exempt from backup withholding.

      Non-U.S. Holders

General

     Any gain realized on the receipt of cash in the merger by a non-U.S. holder generally will not be subject to U.S. Federal income tax unless:

	•		the gain is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment of the non-U.S. holder);
	•		the non-U.S. holder is an individual who is present in the United States, in the aggregate, for 183 days or more in the taxable year of the merger, and certain other conditions are met; or
	•		Osteotech is or has been a “United States real property holding corporation,” or “ USRPHC ,” for U.S. Federal income tax purposes within the five years preceding the merger.

     Unless a tax treaty provides otherwise, a non-U.S. holder whose gain is described in the first bullet point above will be subject to tax on its net gain in the same manner as if it were a U.S. holder. A non-U.S. holder that is a corporation and whose gain is described under the first bullet point above may be subject to an additional branch profits tax equal to 30% of its effectively connected earnings and profits (including such gain) or at such lower rate as may be specified by an applicable income tax treaty.

     An individual non-U.S. holder described in the second bullet point above generally will be subject to tax at a 30% rate on the gain realized, equal to the difference, if any, between the amount of cash received in exchange for shares of our stock and the non-U.S. holder’s adjusted tax basis in such shares, that gain may be offset by certain U.S.-source capital losses incurred in the same taxable year, even though the individual is not considered a resident of the United States.

     We believe that we are not currently and have not previously been a USRPHC for U.S. Federal income tax purposes.

      Information Reporting and Backup Withholding

     Cash received by non-U.S. holders in the merger will be subject to information reporting, unless an exemption applies. Moreover, backup withholding of tax at a rate of 28% may apply to cash received by a non-U.S. holder, unless the holder or other payee establishes an exemption in a manner satisfactory to the paying agent (generally, by providing the paying agent with a signed statement on an applicable Form W-8 attesting to such non-U.S. holder’s exempt status) and otherwise complies with the backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. Federal income tax liability if the required information is timely furnished to the IRS.

      Each holder of our capital stock should consult his, her or its own tax advisors to determine the U.S. Federal income tax consequences applicable to such holder as a result of the merger and any state, local or foreign tax consequences relevant to such holder as a result of the merger.

Delisting and Deregistration of Our Common Stock

     If the merger is completed, our common stock will no longer be traded on the NASDAQ Global Market and will be deregistered under the Securities Exchange Act of 1934, as amended, as soon as practicable following the completion of the merger. The delisting and deregistration will be accomplished by filing a Form 25 and a Form 15 with the SEC.

Class Action Complaints Relating to the Merger

     On August 20, 2010, a class action complaint was filed in the Superior Court of New Jersey Monmouth County concerning the proposed merger. The class action was instituted by John and Rachel Clarke, individually and on behalf of all public stockholders of Osteotech, against Osteotech, our board of directors, our president and chief executive officer, Medtronic, MSD and Merger Sub. The complaint alleges breach of fiduciary duty by the members of our board of directors arising out of the attempt to sell Osteotech by means of unfair process with preclusive deal protection devices and at an unfair price of $6.50 in cash for each share of our common stock. The complaint also alleges that Medtronic aided and abetted the alleged breaches of fiduciary duties by the other defendants. The complaint seeks costs and injunctive relief to prevent the consummation of the proposed merger, or in the event that the proposed merger is consummated, then rescission or rescissory damages, and to require the board of directors to exercise applicable fiduciary duties, and such further relief as the court deems just and proper.

     On August 20, 2010, a class action complaint was submitted to the Superior Court of New Jersey Monmouth County concerning the proposed merger. The class action was instituted by Scott Phillips, individually and on behalf of all public stockholders of Osteotech, against Osteotech and certain members of our board of directors. The complaint alleges breach of fiduciary duty by such members of our board of directors arising out of the attempt to sell Osteotech by means of unfair process with preclusive deal protection devices and at an unfair price of $6.50 in cash for each share of our common stock. The complaint seeks costs and injunctive relief to prevent the consummation of the proposed merger, or in the event that the proposed merger is consummated, then rescission or rescissory damages, to require the defendants to account for any damages they caused and to account for all profits and any special benefits they obtained as a result of any breach of their fiduciary duties, and such further relief as the court deems just and proper.

     On August 25, 2010, a class action complaint was submitted to the Superior Court of New Jersey Monmouth County concerning the proposed merger. The class action was instituted by Charles Miller and Ruthellen Miller, individually and on behalf of all holders of our common stock, against Osteotech, our board of directors, our president and chief executive officer, Medtronic, MSD and Merger Sub. The complaint alleges breach of fiduciary duty by the members of our board of directors arising out of the attempt to sell Osteotech by means of unfair process with preclusive deal protection devices and at an unfair price of $6.50 in cash for each share of our common stock. The complaint also alleges that Medtronic aided and abetted the alleged breaches of fiduciary duties by the other defendants, and further alleges that Osteotech is in violation of Section 211 of the Delaware General Corporation Law for failure to hold an annual meeting. The complaint seeks fees, expenses and costs, injunctive relief to prevent the alleged disenfranchisement of the stockholders and the consummation of the proposed merger, or in the event that the proposed merger is consummated, then rescission or rescissory damages, to declare the proposed merger void and to declare that our board of directors has breached their fiduciary duties, to require the defendants to account for all shares, money and other value allegedly received from Osteotech improperly, disgorgement and imposition of a constructive trust on all property and profits our board of directors received as a result of their allegedly wrongful conduct, an order that Osteotech schedule and hold an annual meeting of the stockholders for the election of directors, and such further relief as the court deems just and proper.

     On August 26, 2010, a class action complaint was submitted to the Superior Court of New Jersey Monmouth County concerning the proposed merger. The class action was instituted by Roney Benjamin, individually and on behalf of all public shareholders of Osteotech, against Osteotech, our board of directors, our president and chief executive officer, Medtronic, MSD and Merger Sub. The complaint alleges breach of fiduciary duty by the members of our board of directors arising out of the attempt to sell Osteotech by means of unfair process with

preclusive deal protection devices and at an unfair price of $6.50 in cash for each share of our common stock. The complaint also alleges that Osteotech and Medtronic aided and abetted the alleged breaches of fiduciary duties by the other defendants. The complaint seeks costs and injunctive relief to prevent the consummation of the proposed merger, or in the event that the proposed merger is consummated, then rescission or rescissory damages, to require the defendants to account for any damages they caused and to account for all profits and any special benefits they obtained as a result of any breach of their fiduciary duties, and such further relief as the court deems just and proper.

     We believe the class actions described above are without merit, and we intend to vigorously defend against the claims asserted.

PROPOSAL NO. 1: THE MERGER AGREEMENT

      The following is a description of the material aspects of the merger agreement but does not purport to describe all of the terms of the merger agreement. While we believe that the following description covers the material terms of the merger agreement, the description may not contain all of the information that is important to you. We encourage you to read carefully this entire document, including the merger agreement attached to this proxy statement as Annex A, for a more complete understanding of the merger. The following description is subject to, and is qualified in its entirety by reference to, the merger agreement.

     The merger agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about Osteotech or its business. Such information can be found elsewhere in this proxy statement and in the other public filings we make with the SEC, which are available without charge at www.sec.gov .

The Merger

     Pursuant to the merger agreement, Merger Sub will merge with and into Osteotech, with Osteotech surviving as a wholly owned indirect subsidiary of Medtronic. At the effective time of the merger, all of Osteotech’s property, rights, privileges, powers and franchises before the merger will vest in the surviving corporation and all of Osteotech’s debt, liabilities and duties before the merger will become the debts, liabilities and duties of the surviving corporation.

Closing; Effective Time

     The consummation of the merger will take place on the later of (i) the fifth business day following the satisfaction or waiver of the conditions to the closing of the merger set forth in the merger agreement and described in this proxy statement or (ii) if Merger Sub or Medtronic identifies an event or circumstance that constitutes or would be reasonably likely to result in a violation of any anti-bribery law by Osteotech, the tenth business day after Merger Sub or Medtronic identifies such likely violation, or on such other day as Osteotech and Medtronic may mutually agree. The merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware or at such later time as is agreed by Osteotech and Medtronic and specified in the certificate of merger.

Certificate of Incorporation and Bylaws

     The merger agreement provides that at the effective time of the merger, the certificate of incorporation of Merger Sub in effect immediately prior to the effective time will be the certificate of incorporation of the surviving corporation, except as amended to change the name of the surviving corporation to “Medtronic Osteotech, Inc.” The bylaws of Merger Sub as in effect immediately prior to the effective time of the merger will be the bylaws of the surviving corporation.

Directors and Officers

     The directors and officers of Merger Sub immediately prior to the effective time of the merger will be the initial directors and officers, respectively, of the surviving corporation.

Effect on Capital Stock

      Common Stock

     At the effective time of the merger, each share of our common stock issued and outstanding immediately prior to the effective time of the merger will be canceled and automatically converted into the right to receive an amount equal to $6.50 in cash, without interest, and less any applicable withholding taxes (which amount, subject to decrease in the limited circumstances described below, we sometimes refer to in this proxy statement as the “ merger consideration ”), other than the following shares:

	•		shares held by Medtronic or any direct or indirect subsidiary of Medtronic or us, all of which will be canceled automatically with no consideration being delivered in exchange for such shares pursuant to the merger agreement; and
	•		shares held by stockholders who have properly exercised their appraisal rights. (See the section of this proxy statement entitled “The Merger—Appraisal Rights,” above.)

     Pursuant to the merger agreement, the merger consideration is subject to decrease only if it were determined that (i) the number of outstanding shares of common stock as of immediately prior to the effective time of the merger exceeds 18,126,882 (provided that we will not be deemed to have exceeded this threshold to the extent any excess is the result of the proper exercise of Options or proper vesting of Restricted Stock Units between the date of the merger agreement and the effective time of the merger), (ii) as of immediately prior to the effective time of the merger, our outstanding Options (and any other outstanding stock rights) are exercisable to purchase more than 1,292,412 shares of our common stock in the aggregate, or the number of outstanding Restricted Stock Units as of immediately prior to the effective time of the merger exceeds 580,436, (iii) any outstanding Option is exercisable at a price that is lower than the exercise price disclosed to Medtronic, or (iv) the aggregate amount of third party expenses incurred by us in connection with the merger (excluding any amounts incurred by us as a result of additional requests for information under antitrust laws, security holder litigation or the receipt by us of any superior acquisition proposals) exceeds $4,868,400 (but only if such excess would result in a reduction to the price equal to more than $0.01 per share of common stock), and, but for the decrease, the aggregate consideration payable by Medtronic would exceed $123,249,643 plus the aggregate exercise price of all in the money Options outstanding as of the date of the merger agreement that are properly exercised between the date of the merger agreement and the effective time of the merger (which amount, in the aggregate, reflects merger consideration of $6.50 per share).

     We agreed to the amounts referenced in clauses (i) — (iv) above based on a number of assumptions, including that our records were accurate as of the date of the merger agreement. Third party expenses are defined in the merger agreement as expenses incurred, or to be incurred through the effective time of the merger, by us in connection with the merger agreement or the transactions contemplated thereby, including, without limitation, all legal, accounting, investment banking, broker, financial advisory, consulting and all other fees and expenses of third parties. Third party expenses do not include expenses incurred by us as a direct result of additional requests for information under antitrust laws, security holder litigation against us relating to the merger, or the receipt of, and activities related to, the receipt by us of any superior acquisition proposals. We agreed to the $4,868,400 threshold for third party expenses based on our judgment that the amount we had incurred in fees as of the date of the merger agreement, together with the amount we expected to incur prior to the closing of the merger (including the fee that will be payable to Deutsche Bank upon the closing of the merger), would not exceed $4,868,400.

     In the event that (i) our records reflecting the outstanding common stock, Options to purchase shares of our common stock, or Restricted Stock Units are inaccurate or (ii) the aggregate amount of third party expenses incurred by us in connection with the merger (excluding any amounts incurred by us as a result of additional requests for information under antitrust laws, security holder litigation or the receipt by us of any superior acquisition proposals) exceeds $4,868,400 (but only if such excess would result in a reduction to the price equal to more than $0.01 per share of common stock), the $6.50 per share merger consideration payable to our stockholders will decrease only if the aggregate amount of such inaccuracy or inaccuracies cause the aggregate consideration payable by Medtronic to exceed $123,249,643 plus the aggregate exercise price of all in the money Options outstanding as of the date of the merger agreement that are properly exercised between the date of the merger agreement and the effective time of the merger. In such event, the reduced per share merger consideration will be equal to:

	•		the sum of (i) $123,249,643 plus (ii) the aggregate exercise price of all in the money Options outstanding as of the effective time of the merger, plus (iii) the aggregate exercise price of all Options exercised between the date of the merger agreement and the effective time of the merger, minus (iv) the amount by which our third party expenses in connection with the merger exceed the $4,868,400 cap (but only if such excess would result in a reduction to the price equal to more than $0.01 per share of common stock), divided by
	•		a number equal to the sum of (i) the number of outstanding shares of our common stock outstanding as of immediately prior to the effective time of the merger, plus (ii) the number of Restricted Stock Units outstanding as of immediately prior to the effective time of the merger, plus (iii) the number of shares of our common stock purchasable upon exercise of all in the money Options outstanding as of immediately prior to the effective time of the merger.

The reduced per share consideration will be calculated and rounded to two decimal places, with the second decimal place rounded up if the third decimal place is 5 or more.

     While we cannot guarantee that the merger consideration will be $6.50 per share and that such amount will not be decreased pursuant to the merger agreement provisions described above, as of the date of this proxy statement we do not anticipate that there will be any such decrease. We do not believe the actual numbers of outstanding common stock, Options or Restricted Stock Units will be inaccurate, as explained in more detail below:

•

Common Stock: Under the merger agreement, we are permitted to have up to 18,126,882 shares outstanding as of immediately prior to the effective time of the merger, plus any shares issued as a result of the proper exercise of Options or proper vesting of Restricted Stock Units between the date of the merger agreement and the effective time of the merger, without triggering an adjustment to the per share merger consideration. We did not intend, and do not intend, to issue any other shares of common stock other than upon the proper exercise of Options and upon proper vesting of Restricted Stock Units.

Because we do not intend to issue any additional shares of common stock prior to the effective time of the merger (other than as a result of the proper exercise of Options and proper vesting of Restricted Stock Units), we believe it is unlikely that we will exceed the 18,126,882 share threshold (as adjusted to reflect proper exercises of Options and proper vesting of Restricted Stock Units). Even if we did exceed the threshold, the effect of any such excess would be distributed over all of the shares, Options and Restricted Stock Units whose holders are entitled to receive merger consideration therefor. Based on the number of shares of common stock outstanding on • , 2010, and assuming the outstanding Options and Restricted Stock Units as reflected in our records are accurate and that we do not exceed the permitted third party expenses threshold, there would have to be approximately • additional shares of common stock outstanding and not already reflected in our records in order for the merger consideration to decrease by $0.01 per share (to $6.49 per share).

•

Options: As of immediately prior to the effective time of the merger, our outstanding Options (and any other outstanding stock rights) may be exercisable to purchase no more than 1,292,412 shares of our common stock in the aggregate without triggering an adjustment to the per share merger consideration. As of the date of the merger agreement, there were Options outstanding that were exercisable to purchase an aggregate of 1,292,412 shares of our common stock, leaving no margin for error as of that date. Based on our belief that our books and records were accurate, our intent not to issue additional Options prior to the effective time of the merger and our knowledge that certain out of the money Options would not be exercised and were likely to expire before the effective time of the merger, we were comfortable that the threshold would not be exceeded. Since the date of the merger agreement, Options to purchase an aggregate of • shares of our common stock were exercised[, and Options to purchase • shares either expired in accordance with their terms or were forfeited in accordance with their terms in connection with the termination of employment of the related grantees]. Accordingly, as of • , 2010 there were outstanding Options exercisable to purchase only • shares of our common stock, all of which are exercisable at the same exercise prices as disclosed to Medtronic in connection with signing the merger agreement. This represents an overall margin of • Options. However, taking into account the • shares of common stock issued upon exercise of Options following the date of the merger agreement, the holders of which will be

			entitled to receive merger consideration in connection with the merger, the margin for error with respect to outstanding Options is • .
			We believe our records are accurate, and accordingly we do not expect the exercise prices to change prior to the effective time of the merger. In addition, because we do not intend to issue any additional Options prior to the effective time of the merger, we do not believe we will exceed the permitted threshold of 1,292,412 (as adjusted to reflect the proper exercise of Options prior to the effective time of the merger). Even if we did exceed such threshold, the effect of any such excess would be distributed over all of the shares, Options and Restricted Stock Units whose holders are entitled to receive merger consideration therefor. Based on the number of Options outstanding on • , 2010 and the weighted average exercise price of in the money Options as of that date, and assuming the outstanding shares of common stock and Restricted Stock Units as reflected in our records are accurate and that we do not exceed the permitted third party expenses threshold, there would have to be approximately • additional Options outstanding and not already reflected in our records in order for the merger consideration to decrease by $0.01 per share (to $6.49 per share).
	•		Restricted Stock Units: Under the merger agreement, we may have up to 580,436 Restricted Stock Units outstanding as of immediately prior to the effective time of the merger without triggering an adjustment to the per share merger consideration. As of the date of the merger agreement there were 580,436 Restricted Stock Units outstanding, leaving no margin for error as of that date. As of • , 2010 an aggregate of • Restricted Stock Units have vested since the date of the merger agreement and were issued as shares of our common stock[, and • Restricted Stock Units were forfeited in accordance with their terms in connection with the termination of employment of the related grantees]. Consequently, as of • , 2010 there were only • Restricted Stock Units outstanding.
			Because we do not expect to issue any additional Restricted Stock Units prior to the effective time of the merger, we do not believe we will exceed the 580,436 Restricted Stock Unit threshold (as adjusted to reflect the proper vesting of Restricted Stock Units prior to the effective time of the merger). Even if we did exceed the threshold, the effect of any such excess would be distributed over all of the shares, Options and Restricted Stock Units whose holders are entitled to receive merger consideration therefor. Based on the number of Restricted Stock Units outstanding on • , 2010, and assuming the outstanding shares of common stock and Options as reflected in our records are accurate and that we do not exceed the permitted third party expenses threshold, there would have to be approximately • additional Restricted Stock Units outstanding and not already reflected in our records in order for the merger consideration to decrease by $0.01 per share (to $6.49 per share).

Likewise, although between the date of the merger agreement and the effective time of the merger Options will be exercised and Restricted Stock Units will vest, we do not expect that the aggregate consideration payable by Medtronic will exceed the threshold amount set forth in the merger agreement and described above. In addition, with respect to third party expenses, absent unforeseen circumstances that require us to devote significant legal and accounting resources toward the merger in the future, we do not expect the amount of third party expenses incurred by us as of • , 2010, together with the amount of such expenses we expect to incur between • , 2010 and the closing of the merger, will exceed $4,868,400. Importantly, expenses that are potentially highly variable, such as expenses relating to second requests for information under antitrust laws, security holder litigation against us relating to the merger, and activities related to superior acquisition proposals, are excluded from the $4,868,400 cap. Furthermore, the merger consideration will not be decreased as the result of our exceeding the $4,868,400 cap to the extent that the excess would result in a reduction to the merger consideration of $0.01 or less. Even if we did exceed the aforementioned cap, the effect of any such excess would be distributed over all of the shares, Options and Restricted Stock Units whose holders are entitled to receive merger consideration therefor. Based on the number of shares of common stock, Options and Restricted Stock Units outstanding on • , 2010 and assuming such numbers as reflected in our records are accurate, we would have to incur approximately $ • of third party expenses, in addition to the $4,868,400 of permitted third party expenses, in order for the merger consideration to decrease by $0.02 per share (to $6.48 per share).

     Stockholders of record will not receive the merger consideration until they surrender their stock certificates for certificated shares to the paying agent for exchange or comply with the procedures for lost certificates (each as

described below), and otherwise comply with the procedures described in “The Merger Agreement—Procedures for Exchange of Certificates” beginning on page • . If you own shares of our common stock that are held in “street name” by your broker, nominee, fiduciary or other custodian, you will receive instructions from your broker, nominee, fiduciary or other custodian as to how to surrender your “street name” shares and receive cash for those shares.

     Medtronic has represented to us under the merger agreement that it has, and will have as of the effective time of the merger, sufficient funds to complete the merger and pay all amounts it is required to pay under the merger agreement.

Effect on Equity Awards

      Options

     Each Option to purchase shares of our common stock that is outstanding immediately prior to the effective time of the merger will, at such time, be canceled in exchange for the right to receive an amount, payable in cash as soon as practicable following the effective time of the merger, equal to the product of:

	•		the total number of shares of common stock subject to the Option or Options as of the effective time of the merger, multiplied by
	•		the excess, if any, of the merger consideration over the exercise price per share of the shares of common stock subject to the Option or Options, less applicable withholding taxes, if any, required to be withheld with respect to such payment.

Options that are outstanding immediately prior to the effective time of the merger that have an exercise price per share equal to or greater than the merger consideration will receive no consideration at the effective time of the merger.

      Restricted Stock Units

     Each Restricted Stock Unit that is outstanding immediately prior to the effective time of the merger will, at such time, be canceled in exchange for the right to receive an amount, payable in cash as soon as practicable following the effective time of the merger, equal to the product of:

	•		the total number of shares of common stock represented by the Restricted Stock Unit or Units as of the effective time of the merger, multiplied by
	•		the merger consideration less applicable withholding taxes, if any, required to be withheld with respect to such payment.