ORTHOVITA INC
EMPLOYMENT AGREEMENT
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT
<TEXT>

<PAGE>

                                                                    EXHIBIT 10.1


                                 EMPLOYMENT AGREEMENT
                                 --------------------


     EMPLOYMENT AGREEMENT (the "Agreement") entered into as of
December 31,1999, by and between Orthovita, Inc., a Pennsylvania corporation
(the "Company"), and Bruce A. Peacock, an employee of the Company ("Peacock").

     WHEREAS, the Company wishes to continue to employ Peacock as its President
and Chief Operating Officer and as a member of its board of directors, and to
elect Peacock as its Chief Executive Officer as provided in Section 1.2 herein,
and both parties desire to enter into an employment agreement to reflect
Peacock's present and future position with the Company upon the terms and
conditions set forth herein.

     NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:

     1.0   Employment.  The Company hereby continues to employ Peacock as its
           ----------
President and Chief Operating Officer.  Peacock hereby accepts such employment
and agrees to perform his duties and responsibilities, in accordance with terms,
conditions and provisions hereinafter set forth.

     1.1  Employment Term.  The term of Peacock's employment under this
          ---------------
Agreement shall commence as of the date hereof (the "Effective Date") and shall
continue in effect through December 31, 2000 provided, however, that if a Change
in Control shall have occurred during the Employment Term, the Employment Term
shall expire no earlier than twenty-four (24) months beyond the month in which
such Change in Control occurred (the "Employment Term"), unless terminated prior
thereto in accordance with the applicable provision of Section 5.  On or about
September 30, the parties shall meet to discuss the contract, if any, for 2001.

     1.2  Duties and Responsibilities.  Peacock shall serve as the Company's
          ---------------------------
President and Chief Operating Officer and in such other senior positions, if
any, to which he may be elected by the Board of Directors of the Company (the
"Board") during the Employment Term.  The Company shall cause Peacock's name to
be submitted for election as the Company's Chief Executive Officer ("CEO") at
the meeting of the Board of Directors to be held on May 23, 2000.  During the
Employment Term, Peacock shall perform all duties and accept all
responsibilities incident to, and not inconsistent with, such positions.

     1.3  Extent of Service.  During the Employment Term, Peacock agrees to use
          -----------------
his best efforts to carry out his duties and responsibilities under Section 1.2
hereof and, consistent with the other provisions of this Agreement, to devote
substantially all his business time, attention, and energy thereto except to the
extent required by Peacock's outside board directorships, civic or charitable
activities held on the date of this Agreement.  Peacock agrees not to become
engaged

                                       1
<PAGE>

in any additional business, civic or charitable activity which, in the Board's
reasonable judgment, is likely to interfere materially with his ability to
discharge his duties and responsibilities to the Company.

     1.4  Base Salary.  For all the services rendered by Peacock hereunder, the
          -----------
Company shall pay Peacock a base salary at the annual rate of $225,000 plus an
automobile allowance of $800.00 per calendar month ("Base Salary"), payable in
installments at such times as the Company customarily pays its other senior
level Officers (but in any event no less often than monthly).  Peacock's Base
Salary shall be reviewed and may be appropriately adjusted at such time by the
Board pursuant to its normal performance review policies for senior level
Officers upon his election as CEO; such increased Base Salary, if any, is
hereafter referred to as "CEO Base Salary".  Peacock's CEO Base Salary shall
thereafter be reviewed by the Board in December of each year.

     1.5  Retirement and Benefit Coverages.  Peacock shall be eligible to
          --------------------------------
participate in any pension plans, retirement plans and any health, life,
accident, general liability, directors and officers liability, or disability
insurance, sick leave or other benefit plans or programs made available to other
similarly situated employees of the Company as long as they are kept in force by
the Company ("Plans") and provided Peacock meets the eligibility requirements
and other terms, conditions and restrictions of the respective Plans.  In
addition, Peacock shall be entitled to the Company's regular holiday and
vacation policy and any other perquisites provided by the Company to its senior
level Officers.

     1.6  Stock Options/Stock Awards/Benefits.  In the event that (i) Peacock's
          -----------------------------------
employment is terminated by the Company or a successor entity pursuant to
Section 5.4 or (ii) Peacock resigns from the Company pursuant to Section 5.5 or
(iii) there is a Change of Control as defined in Section 6, then one hundred
percent (100%) of any stock option, restricted stock or other stock awards
granted Peacock that have not yet become exercisable or vested shall become
exercisable or vested on the effective date of the event set forth in (i), (ii)
or (iii) of this sentence and Peacock shall become entitled to the payments set
forth in Sections 5.4 or 5.5, as applicable.  Subject to the discretion of the
Board, Peacock shall be eligible to receive additional grants of stock options
from time to time in the future, on such terms and subject to such conditions as
the Board shall determine as of the date of any such grant.

     1.7  Life Insurance.  During the Employment Term, the Company shall
          --------------
maintain, under an arrangement satisfactory to the Company, $3,000,000 of life
insurance on the life of Peacock. Peacock shall have the right to designate the
beneficiary of such insurance policy. The Company may maintain term life
insurance, whole life insurance or such other form of insurance as it deems
appropriate.

     1.8  Incentive Programs.  Peacock shall be entitled to participate in any
          ------------------
short-term or long-term incentive compensation programs established by the
Company for its senior level Officers generally ("Incentive Programs").
Payments under such Incentive Programs shall depend upon achievement of certain
business and individual performance targets specified and approved by the Board;
provided, however, that Peacock's "target opportunity" under any such

                                       2
<PAGE>

Incentive Program shall be at least at the highest level of target award for any
other senior Officer.

     2.0  Confidential Information.  Peacock acknowledges that, by reason of his
          ------------------------
employment by and service to the Company before and during the Employment Term,
he has had and will continue to have access to certain confidential and
proprietary information relating to the Company's business, which may include,
but is not limited to, trade secrets as defined by Pennsylvania Law, customer
information, supplier information, cost and pricing information, marketing and
sales techniques, strategies and programs, proprietary computer programs and
software and financial information (collectively referred to as "Confidential
Information").  Peacock acknowledges that such Confidential Information is a
valuable and unique asset of the Company and Peacock covenants that he will not
at any time during the Employment Term use any Confidential Information or
divulge or disclose any Confidential Information to any person, firm or
corporation except in connection with Peacock's good faith belief as to the
proper performance of his duties for the Company.  Peacock also covenants that,
for a period of three (3) years after the termination of his employment,
directly or indirectly, he will not use any Confidential Information for any
purpose or divulge or disclose any Confidential Information to any person, firm
or corporation, unless such information is in the public domain through no fault
of Peacock or except when required to do so by a court of law, by any
governmental agency having supervisory authority over the business of the
Company or over Peacock or by any administrative or legislative body (including
a committee thereof) which Peacock reasonably believes has apparent jurisdiction
to order him to divulge, disclose or make accessible such information, in which
case Peacock will inform the Company in writing promptly of such required
disclosure.

     3.0  Non-Competition; Non-Solicitation.
          ---------------------------------

          (a) During the Employment Term and for a period of two years
thereafter, or, if longer, for the period during which Peacock receives payments
from the Company under Section 5, Peacock will not, except with the prior
written consent of the Board, directly or indirectly own, manage, operate, join,
control, finance or participate in the ownership, management, operation, control
or financing of, or be connected as an officer, director, employee, partner,
principal, agent, representative, consultant or otherwise with, or use or permit
his name to be used in connection with, any business or enterprise that is
engaged in a geographic area in which the Company or any of its affiliates is
operating either during the Employment Term or on the date Peacock's employment
terminates, as applicable, (whether or not such business is physically located
within those areas) (the "Geographic Area"), in any biomaterials business that
is directly competitive to a business from which the Company or any of its
affiliates derive at least five percent of its respective gross revenues either
during the Employment Term or on the date Peacock's employment terminates, as
applicable ("Competing Business").   It is recognized by Peacock that the
business of the Company and its affiliates and Peacock's connection therewith is
or will be involved in activity throughout the Geographic Area, and that more
limited geographical limitations on this non-competition covenant are therefore
not appropriate.

                                       3
<PAGE>

          (b) The foregoing restrictions shall not be construed to prohibit the
ownership by Peacock of less than five percent of any class of securities of any
corporation which is engaged in any of the foregoing businesses having a class
of securities registered pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act"), provided that such ownership represents a passive investment
and that neither Peacock nor any group of persons including Peacock in any way,
either directly or indirectly, manages or exercises control of any such
corporation, guarantees any of its financial obligations, otherwise takes any
part in its business, other than exercising his rights as a shareholder, or
seeks to do any of the foregoing.

          (c) Peacock further covenants and agrees that, during the Employment
Term and for the period of two years thereafter, or, if  longer, for the period
during which Peacock receives payments from the Company under Section 5, Peacock
will not, without the prior written consent of the Company, personally solicit
for a Competing Business any customer that was a customer of the Company or any
of its affiliates during the Employment Term or on the date on which Peacock's
employment terminates or any person who is a managerial or higher level employee
of the Company at the date Peacock's employment terminates.  The foregoing
covenant of Peacock shall not apply to any person after twelve months have
elapsed subsequent to the date on which such person's employment by the Company
has terminated.

     4.0  Equitable Relief.
          ----------------

          (a)  Peacock acknowledges and agrees that the restrictions contained
in Sections 2 and 3 are reasonable and necessary to protect and preserve the
legitimate interest, properties, goodwill and business of the Company, that the
Company would not have entered into this Agreement in the absence of such
restrictions and that irreparable injury will be suffered by the Company should
Peacock's breach any of the provisions of Sections 2 and 3.  Peacock represents
and acknowledges that (i) he has been advised by the Company to consult his own
legal counsel in respect of this Agreement, and (ii) he has had full
opportunity, prior to execution of this Agreement, to review thoroughly this
Agreement with his counsel.

          (b)  Peacock further acknowledges and agrees that a breach of any of
the restrictions in Sections 2 and 3 cannot be adequately compensated by
monetary damages. Peacock agrees that the Company shall be entitled to seek
preliminary injunctive relief, without the necessity of proving actual damages.
In the event that any of the provisions of Sections 2 or 3 hereof should ever be
adjudicated to exceed the time, geographic, service, or other limitations
permitted by applicable law in any jurisdiction, it is the intention of the
parties that the provision shall be amended to the extent of the maximum time,
geographic, service, or other limitations permitted by applicable law, that such
amendment shall apply only within the jurisdiction of the court that made such
adjudication and that the provision otherwise be enforced to the maximum extent
permitted by law.

          (c)  Peacock irrevocably and unconditionally (i) agrees that any suit,
action or other legal proceeding arising out of this Agreement, including,
without limitation, any action commenced by the Company for preliminary and
permanent injunctive relief and other equitable

                                       4
<PAGE>

relief, may be brought in the United States District Court for the Eastern
District of Pennsylvania, or if such court does not have jurisdiction or will
not accept jurisdiction, in any court of general jurisdiction in Chester County,
Pennsylvania, (ii) consents to the non-exclusive jurisdiction of either such
court in any such suit, action or proceeding, and (iii) waives any objection
which Peacock may have to the laying of venue of any such suit, action or
proceeding in either such court. Peacock also irrevocably and unconditionally
consents to the service of any process, pleadings, notices or other papers at
the address set forth in the notice provisions of Section 12 hereof.

     5.0  Termination.  The Employment Term shall terminate upon the occurrence
          -----------
of any one of the following events:

     5.1  Disability.  The Company may terminate the Employment Term in
          ----------
compliance with applicable law, if Peacock is unable substantially to perform
the essential duties and responsibilities hereunder to the full extent required
by the Board by reason of mental or physical illness, injury or any other cause
for six consecutive months, or for more than nine months in the aggregate during
any period of twelve consecutive calendar months (a "Disability"); provided,
however, that the Company shall continue to pay Peacock his Base Salary or CEO
Base Salary, as applicable, until termination of the Employment Term.  At the
date of such termination the Company shall prepare and execute a release
substantially in the form attached hereto as Annex 1, (the "Release"), and
present the Release for execution to Peacock, or Peacock's representative should
he lack capacity to execute the Release.  Upon execution of the Release by
Peacock, or his personal representative, as the case may be, Peacock shall be
entitled to receive all payments and benefits to the same extent and at the same
time as specified in Section 5.4(b), offset by any amounts Peacock receives
under any long term disability program maintained by the Company.  Otherwise, in
the event of Disability, the Company shall have no further liability or
obligation to Peacock under this Agreement except as set forth in the Release.
In the event of any dispute under this Section 5.1 and to the extent determined
by the Board to be job-related and consistent with business necessity, Peacock
shall submit to a physical examination by a licensed physician experienced in
disability examination selected by the Board and approved by Peacock, such
approval not to be unreasonably withheld.

     5.2  Death.  The Employment Term shall terminate on the date of Peacock's
          -----
death.  In such event, the Company shall pay to Peacock's executors, legal
representatives or administrators, as applicable, an amount equal to the
installment of his Base Salary set forth in Section 1.4 hereof or CEO Base
Salary, as applicable, for the full month in which he dies, and all unreimbursed
expenses and unused vacation time.  If Peacock dies while an employee of the
Company, the designated beneficiary, or if no such beneficiary has been
designated, Peacock's estate, shall be entitled to receive (i) the proceeds of
the life insurance policy described in Section 1.7 and (ii) a payment from the
Company of an amount equal to the benefits calculated as of the date of death
pursuant to Section 5.4(a)(ii), on the basis that the death of Peacock is
equivalent to termination without cause.  Otherwise, the Company shall have no
further liability or obligation under this Agreement to his executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him.

                                       5
<PAGE>

     5.3.  Cause.  The Company may terminate the Employment Term at any time for
           -----
"Cause" upon 30 days' written notice to Peacock, in which event all payments
under this Agreement shall cease, except for (i) Base Salary, or CEO Base
Salary, as applicable, to the extent already earned and a payment equal to any
unreimbursed expenses and unused vacation, which shall be paid in a single lump
sum on the day the Employment Term terminates, and (ii) any other benefits in
accordance with the terms of any applicable Plans and Incentive Programs of the
Company.  For purposes of this Agreement, Peacock's employment may be terminated
for "cause" if (i) Peacock is convicted of a felony (ii) in the reasonable
determination of the Board, Peacock has committed an intentional act of fraud,
embezzlement, or theft in connection with Peacock's duties in the course of his
employment with the Company, or engaged in gross negligence in the course of his
employment with the Company or (iii) Peacock intentionally breached his
obligations under this Agreement, including inattention to or neglect of duties
and shall not have remedied such breach within 30 days after receiving written
notice from the Board specifying the details thereof, provided, however, that in
any case under this clause (iii), the act or failure to act by Peacock is
materially harmful to the business of the Company.  For purposes of this
Agreement, an act or omission on the part of Peacock shall be deemed
"intentional" or gross negligence only if it was done by Peacock in bad faith,
not merely an error in judgment, and without reasonable belief that the act or
omission was in the best interest of the Company.  In the event of a dispute
concerning  application of the words intentional or gross negligence as used in
this Section 5.3, no claim by the Company that Cause exists shall be given
effect unless the Company establishes to the Board by clear and convincing
evidence that Cause exists.

     5.4.  Termination Without Cause.
           -------------------------

          (a)  The Company may terminate Peacock without cause, at any time,
from the position in which he is employed hereunder (on which date the
Employment Term shall be deemed to have ended) upon not less than 30 days' prior
written notice to Peacock; provided, however, that, commencing on the date of
such notice, Peacock shall be under no obligation to render any additional
services to the Company and shall be allowed to seek other employment.  Upon
such termination, except as provided in Section 5.4(b) below, Peacock shall be
entitled to receive, as liquidated damages for the failure of the Company to
continue to employ Peacock (i) Base Salary or CEO Base Salary, as applicable, to
the extent already earned and a payment equal to any unused vacation,
unreimbursed expenses, which shall be paid in a single lump sum on the day the
Employment Term ends, and (ii) any other benefits in accordance with the terms
of any Plans and Incentive Programs of the Company.

          (b)  Notwithstanding the foregoing, upon such termination, the Company
shall prepare and execute the Release and present the Release to Peacock for
execution.  Upon execution of the Release by Peacock, he shall be entitled to
receive, commencing on the eighth day following execution of the Release, in
lieu of the Company obligations described in Subsection (a) of this Section,
which Peacock agrees to waive, as liquidated damages for the failure of the
Company to continue to employ Peacock, (i) continuation for eighteen months of
Peacock's current Base Salary, or CEO Base Salary, as applicable, in accordance
with Section 1.4 (without regard to Peacock's removal), (ii) any other amounts
earned, vested, or owing but

                                       6
<PAGE>

not yet paid under Section 1.1 through 1.8 above, (iii) a pro-rata portion of
any Incentive Programs to the extent that such amount would have been earned in
accordance with the terms of such Incentive Programs specified in Section 1.8
above for the then current fiscal year of the Company, without regard to a
requirement, if any, set forth in Incentive Programs of employment with the
Company at date of payment under such Incentive Programs (iv) a payment equal to
any unused vacation and unreimbursed expenses, (v) any other benefits in
accordance with the terms of any Plans and Incentive Programs of the Company
without regard to a requirement, if any, set forth in Plans or Incentive
Programs of employment with the Company at date of payment under such Plans or
Incentive Programs, and (vi) to the extent not provided in (v) directly above,
health insurance for Peacock and eligible family members and disability
insurance for Peacock, for a period of eighteen (18) months from the date of
termination pursuant to Section 5.4(a), each with coverage and at a cost
identical to that provided Peacock immediately prior to such termination. Upon
Termination Without Cause, Company shall have no liability or obligation to
Peacock except as set forth in Section 5.4 and in the Release.

     5.5  Constructive Termination Without Cause.
          --------------------------------------

          (a)  Resignation by Peacock for good reason ("Constructive Termination
without Cause") shall mean a termination of Peacock's employment at his
initiative following the occurrence, without Peacock's written consent, of (i) a
material diminution in Peacock's duties, responsibilities, authority or status,
or a failure of Peacock to have a position reporting directly to the Board, (ii)
a reduction in any amount of Peacock's Base Salary, or CEO Base Salary, as
applicable, (iii) the assignment to Peacock of duties or responsibilities which
are materially inconsistent with the duties, responsibilities, authority, or
status of his position as defined in Section 1.2 above or which materially
impair Peacock's ability to function in his then current position, (iv)
Peacock's removal as a member of the Board, or (v) a failure of the Company to
comply with any of the material terms of this Agreement.

          (b)  In the event of a Constructive Termination Without Cause the
Company shall prepare and execute the Release and present the Release to Peacock
for execution.  Upon execution of the Release by Peacock, he shall be entitled
to receive all amounts and benefits to the same extent and at the same time as
specified in Section 5.4(b).  In the event Peacock refuses to execute the
Release (or revokes the Release), he shall receive only the amounts and benefits
to the same extent and at the same time as specified in Section 5.4(a).

          (c)  Prior to resigning under this Section, Peacock shall give written
notice to the Board and offer a 30-day period for the Company to cure.  If no
cure has been effected by the end of the applicable cure period, Peacock may
resign immediately.  The Company may not terminate Peacock pursuant to Section
5.3 or 5.4 subsequent to the date of the written notice provided pursuant to
this Section 5.5(c).

     5.6.  Voluntary Termination.  Peacock may voluntarily terminate the
           ---------------------
Employment Term upon 30 days' prior written notice for any reason.  In such
event, Peacock shall be entitled only to (i) Base Salary, or CEO Base Salary, as
applicable,  to the extent already earned and a

                                       7
<PAGE>

payment equal to any unused vacation, and unreimbursed expense which shall be
paid in a single lump sum on the day the Employment Term terminates, and (ii)
any other benefits in accordance with the terms of any Plans and Incentive
Programs of the Company. A voluntary termination under this Section 5.6 shall
not be deemed a breach of this Agreement.

     5.7  Termination at End of Employment Term.  Notwithstanding Section 5.6,
          -------------------------------------
if Peacock's  employment with the Company is terminated or not renewed at the
end of an Employment Term by the Company, the Company shall prepare and execute
the Release and present the Release to Peacock for execution.  Upon execution of
the Release by Peacock, the Company shall pay to Peacock as severance
compensation the amounts described in Section 5.4(b), but with Peacock's Base
Salary, or CEO Base Salary, as applicable,  to continue under Section 5.4(b)(i)
for one year after termination of employment. The payments under this Section
5.7 shall be made in lieu of the payments described in Section 5.6, which
Peacock hereby  agrees to waive. In the event Peacock refuses to execute the
Release (or revokes the Release), Peacock shall receive only amounts and
benefits specified in Section 5.6.

     5.8  Executive shall be required to mitigate the amount of any payment or
benefit provided for in Sections 5.4(b), 5.5(b) and 5.7, by seeking other
employment or otherwise and there shall be offset against amounts due Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that he may obtain.  The Company's obligations to make
payments under this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which the Company may
have against Executive or others.

     6.0  Change of Control.
          -----------------

          (a) If a Change of Control (as defined in (c) below) occurs during the
Employment Term, the extension of the Employment Term pursuant to Section 1.1
shall be subject to the provisions of subsection (b) below.

          (b) Notwithstanding anything in this Agreement to the contrary, if it
shall be determined that any payment or distribution by the Company to or for
the benefit of Peacock pursuant to the terms of this Agreement or otherwise (a
"Payment") would constitute an "excess parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and
that it would be economically advantageous to the Company to reduce the Payment
to avoid or reduce the taxation of excess parachute payments under Section 4999
of the Code, the aggregate present value of the amounts payable or distributable
to or for the benefit of Peacock pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced (but not below zero) to the Reduced
Amount. The "Reduced Amount" shall be an amount expressed in present value which
maximizes the aggregate present value of Agreement Payments without causing any
Payment to be subject to taxation under Section 4999 of the Code. For purposes
of this Section 6, present value shall be determined in accordance with Section
280G(d)(4) of the

                                       8
<PAGE>

Code. The calculations under this Section 6(b) shall be made as follows:

          (i) All determinations to be made under this Section 6(b) shall be
made by the Company's independent public accounting firm as in effect
immediately prior to the Change of Control (the "Accounting Firm"), which firm
shall provide its determinations and any supporting calculations to the Company
and Chief Operating Officer within 10 days of the event that gives rise to the
"excess parachute payment." Any such determination by the Accounting Firm shall
be binding upon the Company and Peacock. Peacock shall in his sole discretion
determine which and how much of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 6(b).  Within five days
after Peacock's determination, the Company shall pay (or cause to be paid) or
distribute (or cause to be distributed) to or for the benefit of Peacock such
amounts as are then due to Peacock under this Agreement.

          (ii) As a result of the uncertainty in the application of Section 280G
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Agreement Payments will have been made by the
Company which should not have been made ("Overpayment") or that additional
Agreement Payments which have not been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculations required to be
made hereunder.  Within two years after the event that gives rise to the "excess
parachute payment," the Accounting Firm shall review the determination made by
it pursuant to the preceding paragraph.  If the Accounting Firm determines that
an Overpayment has been made, any such Overpayment shall be treated for all
purposes as a loan to Peacock which Peacock shall repay to the Company, together
with interest at the applicable Federal rate provided for in Section 7872(f)(2)
of the Code (the "Federal Rate"); provided, however, that no amount shall be
payable by Peacock to the Company if and to the extent such payment would not
reduce the amount which is subject to taxation under Section 4999 of the Code.
In the event that the Accounting Firm determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Company to or for
the benefit of Peacock, together with interest at the Federal Rate.

          (iii)  All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in subsections (i) and (ii) above
shall be borne solely by the Company. The Company agrees to indemnify and hold
harmless the Accounting Firm from any and all claims, damages and expenses
resulting from or relating to its determinations pursuant to subsections (i) and
(ii) above, except for claims, damages or expenses resulting from the gross
negligence or willful misconduct of the Accounting Firm.

          (iv) The limitations of this Section 6(b) shall only apply if payments
under this Agreement are subject to Section 280G at the time of the Change of
Control.  If payments under this Agreement would not be subject to Section 280G
if the shareholders of the Company approved the payments, the Company shall use
its best efforts to procure the necessary shareholder approval of the payments
in a timely manner.  If the shareholders approve the payments so that Section
280G does not apply, the Company shall make payments under this

                                       9
<PAGE>

Agreement without regard to this Section 6(b).

          (c)    A "Change of Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have occurred:

              (i)  Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act other than a person who is a shareholder of the
Company as of the effective date of this Agreement) is or becomes a "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing more than 50% of the
combined voting power of the then outstanding securities of the Company, as
determined by the Board of Directors of the Company; or

              (ii) The shareholders of the Company approve (or, if shareholder
approval is not required, the Board approves) an agreement providing for (i) the
merger,  consolidation or other form of business combination of the Company, or
any direct or indirect subsidiary of the Company, with another corporation and
the shareholders of the Company, immediately prior to such transaction, will not
beneficially own, immediately after such transaction, shares of the Company or
the surviving entity or any parent thereof, entitling the  shareholders of the
Company to vote more than 50% of all shares of the Company, or the surviving
entity or any parent thereof which would be entitled in the election of
directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote), (ii) the sale or other disposition of all
or substantially all of the assets of the Company, or (iii) a liquidation or
dissolution of the Company.

              (iii) Individuals who are Continuing Directors cease to
constitute a majority of the members of the Board ("Continuing Directors" for
this purpose being the members of the Board on the date of adoption of this
Agreement, provided that any person becoming a member of the Board subsequent to
such date whose election or nomination for election was supported by two-thirds
of the Directors who then comprised the Continuing Directors shall be considered
to be a Continuing Director).

     7.0   Survivorship.  The respective rights and obligations of the parties
           ------------
hereunder shall survive any termination of Peacock's employment and the
Employment Term to the extent necessary to the intended preservation of such
rights and obligations.

     8.0  Settlement of Disputes; Arbitration; Expenses.  All claims by Peacock
          ---------------------------------------------
for benefits under this Agreement shall be directed to and determined by the
Board and shall be in writing.  Any denial by the Board of a claim for benefits
under this Agreement shall be delivered to Peacock in writing and shall set
forth the specific reasons for the denial and the specific provisions of this
Agreement relied upon.  The Board shall afford a reasonable opportunity for a
review of the decision denying a claim and shall further allow to appeal to the
Board a decision of the Board within sixty (60) days after notification by the
Board that Peacock's claim has been denied.  Any further dispute under the
provisions of this Agreement (other than a dispute in which the primary relief
sought is an equitable remedy such as an injunction) shall be settled by

                                       10
<PAGE>

arbitration in the City of Philadelphia, Pennsylvania in accordance with the
National Rules for the Resolution of Employment Disputes then in effect of the
American Arbitration Association, before a panel of three arbitrators, two of
whom shall be selected by the Company and Peacock, respectively, and the third
of whom shall be selected by the other two arbitrators. Any award entered by the
arbitrators shall be final, binding and nonappealable and judgment may be
entered thereon by either party in accordance with applicable law in any court
of competent jurisdiction.  This arbitration provision shall be specifically
enforceable.  The arbitrators shall have no authority to modify any provision of
this Agreement or to award a remedy for a dispute involving this Agreement other
than a benefit specifically provided under or by virtue of the Agreement.  If
Peacock prevails on any material issue which is the subject of such arbitration
or lawsuit, the Company shall be responsible for all of the fees of the American
Arbitration Association and the arbitrators and any expenses relating to the
conduct of the arbitration as well as Peacock's reasonable legal fees and
expenses. The arbitrators shall, in any other event, determine who shall pay
Peacock's legal fees and expenses.

     9.0  No Attachment.  Except as required by law, no right to receive
          -------------
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect; provided, however, that nothing in this Section
shall preclude the assumption of such rights by executors, administrators or
other legal representatives of Peacock or his estate and their assigning any
rights hereunder to the person or persons entitled thereto.

     10.0  Source of Payment.  All payments provided for under this Agreement
           -----------------
shall be paid in cash from the general funds of the Company.  The Company shall
not be required to establish a special or separate fund or other segregation of
assets to assure such payments, and, if the Company shall make any investments
to aid it in meeting its obligations hereunder, Peacock shall have no right,
title or interest whatever in or to any such investments except as may otherwise
be expressly provided in a separate written instrument relating to such
investments.  Nothing contained in this Agreement, and no action taken pursuant
to its provisions, shall create or be construed to create a trust of any kind,
or a fiduciary relationship, between the Company and Peacock or any other
person.  To the extent that any person acquires a right to receive payments from
the Company hereunder, such right, without prejudice to rights which employees
may have, shall be no greater than the right of an unsecured creditor of the
Company.

     11.0  Notices.  All notices and other communications required or permitted
           -------
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when hand delivered or mailed by
registered or certified mail, as follows (provided that notice of change of
address shall be deemed given only when received):

                                       11
<PAGE>

If to the Company, to:

Orthovita, Inc.
45 Great Valley Parkway
Malvern, PA 19355

If to Peacock, to:

Mr. Bruce A. Peacock
2095 Wyndtree Lane
Malvern, PA 19355

or to such other names or addresses as the Company or Peacock, as the case may
be, shall designate by notice to each other person entitled to receive notices
in the manner specified in this Section.

     12.0  Contents of Agreement; Amendment and Assignment.
           -----------------------------------------------

          (a) This Agreement supersedes all prior agreements and sets forth the
entire understanding between the parties hereto with respect to the employment
of Peacock by the Company and cannot be changed, modified, extended or
terminated except as provided herein or upon written amendment approved by the
Company and executed on its behalf by a duly authorized officer and by Peacock.
This Agreement does not amend or modify the provisions of any Plans or Incentive
Programs in which Peacock participates or is eligible to participate except as
set forth in Sections 1.6 and 5.4(b)(iii) and (v) hereof.

          (b) All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
executors, administrators, legal representatives, successors and assigns of the
parties hereto, except that the duties and responsibilities of Peacock hereunder
are of a personal nature and shall not be assignable or delegatable in whole or
in part by Peacock.  The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise) to
all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to Peacock, expressly to assume and agree to
perform this Agreement in the same manner and to the extent the Company would be
required to perform if no such succession had taken place.

     13.0  Severability.  If any provision of this Agreement or application
           ------------
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision or application in any
other jurisdiction. If any provision is held void, invalid or unenforceable with
respect to particular circumstances, it shall nevertheless remain in full force
and effect in all other circumstances.

     14.0  Remedies Cumulative; No Waiver.  No remedy conferred upon a party by
           ------------------------------

                                       12
<PAGE>

this Agreement is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to any other
remedy given hereunder or now or hereafter existing at law or in equity.  No
delay or omission by a party in exercising any right, remedy or power hereunder
or existing at law or in equity shall be construed as a waiver thereof, and any
such right, remedy or power may be exercised by such party from time to time and
as often as may be deemed expedient or necessary by such party in its sole
discretion.

     16.0  Beneficiaries/References.  Peacock shall be entitled, to the extent
           ------------------------
permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Peacock's death by giving the Company written notice thereof.  In the event of
Peacock's death or a judicial determination of his incompetence, references in
this Agreement to Peacock shall be deemed, where appropriate, to refer to his
beneficiary, estate or other legal representative.

     17.0  Miscellaneous.  All section headings used in this Agreement are for
           -------------
convenience only.  This Agreement may be executed in counterparts, each of which
is an original.  It shall not be necessary in making proof of this Agreement or
any counterpart hereof to produce or account for any of the other counterparts.

     18.0  Withholding.  The Company may withhold from any payments under this
           -----------
Agreement all federal, state and local taxes as the Company is required to
withhold pursuant to any law or governmental rule or regulation.  Peacock shall
bear all expense of, and be solely responsible for, all federal, state and local
taxes due with respect to any payment received hereunder except as otherwise
provided with respect to his restricted stock award.

     19.0  Governing Law.  This Agreement shall be governed by and interpreted
           -------------
under the laws of the Commonwealth of Pennsylvania without giving effect to any
conflict of laws provisions.

     IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.



ORTHOVITA, INC.


By:  /s/ Howard Salasin             /s/ Bruce A. Peacock
     ------------------             --------------------
     Authorized Signature           Bruce A. Peacock
     Member of Compensation         President and COO
     Committee

                                       13
</TEXT>
</DOCUMENT>
